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, July 8, 2016

Third phase of deflation coming

But it's good news for gold miners--profits will rise.

The long-term plot of USDX index vs. the gold price shows that the US dollar gold price and the dollar index are inversely correlated much, but not all of the time. Empirically, money-making opportunities have arisen when both gold and the US dollar are rising together, as is happening now.

The blue trend line represents deflation--times when the US dollar gold price and the dollar index rose together. This trend enhances the profitability of most gold companies, as they are receiving a higher price for their product at the same time as the value of the dollars receiving is rising. The most important stretch where this was happening was in late 2009 to about mid-2010--a time when there were a lot of big moves in mining companies, especially those with production stories.

When the graph moves to successively higher isoquants the business of gold mining becomes more profitable. This happens during the deflationary segments, but can also happen if the gold price rises faster than the US dollar falls, as it did in early 2011, when the gold price rose quickly to over $1800 per ounce, bringing us to about the 1450 isoquant.

The segment of the blue line between the 1000 isoquant and the 1150 isoquant occurred in late 2014 to early 2015. Our current deflationary action started just after the Brexit vote. If it lasts as long as either of the last two episodes, we should have an excellent window for making good money in the gold stocks in the next six months to a year. If the dollar continues to be strong, a gold price of $1450 may bring us to the 1450 isoquant.

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