Friday, February 20, 2015

2015.02.20 Gold Cycle Model Chart

2015.02.20 Gold Cycle Model Chart


















The gold model Z-score increased to 2.4 from the previous iteration. This suggests increasing pressure for a reversal to the mean, in this case a rise towards the $1300 level. A reader asked how to interpret the Z-score, and in answer I have also posted a long term model ranging from 1968 to 2016.

















If you click on the chart to get the higher resolution graphic, you will see that on a historical basis the Z-score has been >3 about a dozen times, out of 11909 data points in the time series.   This is why in my last gold cycle model chart update I mentioned that it was unlikely that the model would breach a Z-score of 3. For convenience, I will also add the model to the long term chart section.   However, it also becomes more likely that the model might fail to converge unexpectedly and annoyingly. According to the cycle model, we seem to be at a major turning point for gold, so we are in the "make or break" time for the model.  Hence, I will try to keep weekly updates current.

3 comments:

PayDay said...

How high (or low) can a z score get before a model is rendered invalid?

For example VIX z score probably over 4 by now. Is z caore of 5, 8, 10+ possible? Or is there a maximum limit before recalculation becomes necessary?

Paolo said...

If you look at Long Term Charts I have placed the VIX Cycle chart and Z-score back to 1990. I think this helps placing the current Z-score in context, which is now 3.39. It was higher than that once around 1999. So, the probability of a reversal is quite high, and I would expect the VIX to increase. However, these are models of reality and not reality, and certainly the VIX cycle model has its limitations in that it cannot capture the short time spikes either way. however, as a fuzzy long term telescope, it continues to suggest, on average, higher prices.If the VIX was stuck at >3 for a period of time, say a few weeks, then I would not put much weight on the prediction. So far, tht has not happened.

A Jones said...

The predictions for gold, whilst optimistic, do not seem to reflect the reality of the market - below $1200 an ounce today. The arrest of the cycle - by those with vested interests - through the selling of naked shorts have clearly carried the day.
My question is how can ANY model be accurate when such manipulation is at work?
Thank you.