Sunday, December 6, 2015

2015.12.04 Gold Cycle Model Chart

2015.12.04 Gold Cycle Model Chart


















The gold cycle model suggests robust pressure for higher prices in the index going forwards. In fact, it suggests we may be at the cusp of a secular rise in gold prices, if the model is correct. The model has plenty of error, and the phase extension over the past few months has been disappointing because we are approaching the point where further divergences will likely not be tolerated by the model structure, and the result will be non-convergence on a model run. The model has reached these high levels of divergence on only four other occasions since 1968.  A friend of mine who has a full time job in the commodity markets tells me that the gold COT figures are quite astounding in terms of the number of speculator short positions at the present time. Historically these extreme positions by speculators always resolve to the upside.  Remembering that all models are wrong but some are useful, a short position in gold at this time would seem to be, on a historical cycle basis, a very very risky trade.  All previous iterations of the model can be found on the blog.

2 comments:

A Jones said...

This of course is agnostic to the massive paper manipulations of the CB's.

This chart shows the effect of the increasing paper contracts on the price of real physical gold (thanks to Chris Hamilton [Hambone] for that):-

https://staticseekingalpha.a.ssl.fastly.net/uploads/2015/11/22/40246456-1448214084728377-Christopher-Hamilton.png



That aside, gold will always shine in the longer term.

Paolo said...

You are right, these models cannot capture exigencies that occur as a result of the ongoing CB obfuscation of the future discounted rate of capital. Bernanke was chosen because of his PhD thesis, which outlined some of the current Fed policies addressing the bursting of the previous Greenspan generated bubbles. I think that looking back on that decision it will be seen as the most egregious error ever committed by a central bank, and one which will be quite challenging to mitigate, short of cold fusion being discovered tomorrow. My rant aside, thanks for dropping in and for that nice "WTF" chart. It looks like a pretty crowded trade at this point.