Dust flux, Vostok ice core

Dust flux, Vostok ice core
Two dimensional phase space reconstruction of dust flux from the Vostok core over the period 186-4 ka using the time derivative method. Dust flux on the x-axis, rate of change is on the y-axis. From Gipp (2001).

Saturday, January 25, 2014

The recent stability of silver

It's been a few months since my last posting on silver in phase space--let's see what's new.

As before we have reconstructed a phase space portrait from weekly closing prices of silver, using a lag of six weeks. Such a graph as we have indicated before is topologically equivalent to a plot of the silver price against its rate of change.

The three white circles show the areas of attraction that were identified prior to the middle of 2013. The yellow circle near the centre represents the totality of the system states since June of 2013.

I should point out here that I have reversed the axes with respect to the earlier silver plots. I am trying to make this consistent with other plots I have done with the principal axis being vertical rather than horizontal.

There is nothing special about the dates listed in blue--it is just difficult otherwise to label points that are not at the extremes of the function.

When silver broke down from the highest area of attraction (in the $30 range), I had forecast it to fall to the middle area of attraction (<$20). As we saw last time, it just missed, and since then has been filling in a zone of attraction which looks to be centered at just over $20.

The current work of filling in a basin of attraction is similar to the notion of gap-filling in standard TA, which seems to be the obvious interpretation. If the silver market as a whole is probably smarter than a lot of individual investors, then there may be another interpretation. The yellow area and the middle white one are the same attractor, but appear separate because of inflation.

The last time the system occupied the middle white attractor (centered at $18) was mid-2010. We entered the yellow attractor (centered at $22) in mid-2013, three years later. A price rise from $18 to $22 is an increase of 22%, which over three years compounded is a whisker under 7%.

Is 7% a good estimate of annual inflation (that is in the commonly accepted definition of a rise in prices, not the correct definition of increase in money supply)? It feels truer than the official pronouncements, but I have seen both higher and lower estimates.

Going forward--my gut feeling is that we haven't finished filling in this area of attraction yet. We could easily spend another six months here, although hopefully in the higher part of the range (up to about $24). Afterwards, the higher white area of attraction comes back into play. Will we see another adjustment for inflation at that time?

There is still an obvious looking gap between our present state and the higher area of attraction beyond, and it wouldn't be surprising to see the silver price state fill that gap before moving higher.

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