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).

Friday, February 7, 2014

Gold x USDX in phase space

From time to time I drag out a geologic or economic time series and unfold it into a two-dimensional phase space to try to get some idea of the underlying dynamics of the function. In particular, these plots can allow us to define flows and attractors in our system of study.

Recently I started looking at the product of the gold price and the US dollar index, finding that in 2011 it shot to a high of over $1400, and fell last year to about $1000, bouncing off it twice, penetrating it briefly in December, but presently rests just above the $1000 level (or isoquant).

The two-dimensional phase space of the gold-USDX system appears below.

Regions of phase space with a high concentration of observations are interpreted as basins of attraction. In the above figure we see three such areas - at about the $650 area, last visited in late 2008, the $1050 area, and about the $1350 area. The system evolution is difficult to distinguish from a random-walk while in the areas of attraction, but evolves more-or-less in one direction while in the flows from basin of attraction to another.

In 2011, the system embarked on a significant excursion, which remained in the $1300 area from late 2011 until early 2013. I think this reflected a battle between the market, which needed to fall, and some people with money who were convinced that gold would only rise further. Like most such battles, it lasted until the money ran out, and the system returned to the $1050 basin of attraction, where it has remained since.

If there is to be a sustained rise in the gold price going forward, this system will break out of its current area of attraction, and likely return to the $1300 area, which would correspond to gold prices of $1700-$1900, depending on the strength of the US dollar. No signs of such a breakout have occurred yet.

1 comment:

  1. mickeyman,
    My compliments. Another articulate, intelligent piece regarding two-dimensional phase-space analysis deducing the systemic attractors therein. Your conclusory paragraph seems benign, but in an unstable dynamic nodal system (concentrated powerful nodes with strong connections) subject to extrinsic events, geopolitical and macroeconomic, among others, your use of the final "yet" is most interesting. Thank you.