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 17, 2015

Gold x USDX since "decision time"

IWNATTOS has been crowing about gold breaking out for some small period of time now. Central to his thesis is that the price of gold has been rising ex-USD.

My approach is slightly different, although the implications are the same. Instead of looking at just the gold price, I have been looking at the product of the gold price in US dollars and the US dollar index. For most gold mining companies (outside the USA), this product has a strong impact on the economics of their mining operations.

If the gold price remains constant while the US dollar index rises, a mining company in Ghana may get the same number of dollars per ounce, but the purchasing power of those dollars rises. The result is higher profit. In fact, rising US dollar (with near constant gold price) is politically more favourable for producing miners--I have never seen a government slap a 'windfall tax' on a mine because of the rising dollar. Such things tend to only occur when the gold price rises.

On a scatterplot of gold vs US dollar index, the loci of constant gold x USDX values were hyperbolae called isoquants.

A couple of months ago, I was looking for a breakout of gold x USDX. We certainly have one now. The size of the current breakout is revealed on the chart of the gold x USDX below.

Gold x USDX has leaped up towards the 1200 level. The last time this product was higher than its present value was on May 10, 2013, when gold was $1426/oz and the US dollar index was a little over 84.

The current move we are looking at does look out of place in comparison to the last 20 months or so. The chart above suggests that there is a long way to go to get back to the good times of 2011. At some point, however, the rate of ascent has to decline or we'll face another collapse.

More about gold on a later post. 


  1. A few points:

    1. The way you drew the triangle in the first chart makes November's false breakdown very obvious.

    2. I guess a TA would call the target of that triangle 1350? That would equate to the late 2012 price point of US$1700 gold. Though not in US$: with USD where it is now, that equates today to about US$1500. Still that will get a load of sudden attention from Americans, won't it?

    3. Stickling here, but the y-axis units are not dollars. They're a sum of fractional Euro, Pound, Yen, CAD, etc.

    4. Yeah you're right, in this regime miners outside of the USA see their profits improve. But I've been ignoring that angle because Americans tend not to invest in gold miners based on frivolous things like profits.

    5. If the rate of ascent is a function of gold shorts getting burned and giving up the ghost, then no. Frankly, I'd say the length of the consolidation of the gold price below the level of production demanded a huge pop and fast ascent to get gold back out of that stupid price range it spent a year in.

    6. There is no number 6.

    7. No poofters.

    1. Unfortunately, I don't know how to define a false breakout. Ok, it may be obvious after the fact, but the money is in identifying before it is obvious.

    2. The point is to reply to the false breakdown by saying "from false moves come fast moves", preferably adding "wooh! to da moon Alice!"