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Guest Post: Gold-Silver Ratio In Phase Space
Submitted by The World Complex
Gold-Silver Ratio In Phase Space
The reconstructed phase space portrait is one tool that can be used to gain insight into the dynamics of complex systems, whether these systems be natural or man-made.
Today we will use these tools to look at precious metals.
The near-constant slope over long stretches of this plot tells us that gold is already increasing in price exponentially. So don't say that gold price will increase exponentially during a financial crisis. It is already doing so, and has been since early 2001 (notwithstanding the recent turmoil).
The break in slope in late 2005 tells us that the gold price suddenly began to increase more rapidly. I don't know if anything unusual happened in late 2005, but there was a bland warning by the ECB issued in December 2005 about growing global financial imbalances.
Reconstructing phase space portraits normally requires two or more time series, sampled at equivalent intervals. You can simply plot one series against the other (a scatter plot). If you are using excel or a similar program, this is remarkably easy.
Looks impressive--the gold line represents a gold:silver ratio of about 60. Deviations from that line represent deviations in this ratio. Silver's rise to nearly $50 in 2011 causes the funny looking nose on the graph at upper right. The curve represents the time evolution of the system, which moved in herky-jerky fashion from the lower left (in January 2000) towards the upper right of the graph (a little while ago). Each plotted point represents the state at the end of each month until roughly the present.
For graphs covering at least an order of magnitude, it may be worth using logarithmic axes.
The problem with these graphs is the presence of the US dollar. Most of the action in the plot is due to the declining value of the US dollar. To remove it, let us consider only the gold:silver ratio itself.
There are a number of long-accepted methods for projecting a single data series into a state space of more than one dimension. The intuitively obvious approach is to plot the data against its first (and higher, if desired) time derivatives. The approach I have used most commonly in these pages is a time delay plot, in which the respective observations are plotted against another, older observation. The lag is the number of time steps between the two observations, and there are prescribed methods for establishing an ideal lag.
Taking the month-end ratio of the gold price to the silver price, plotting it against a lagged copy of itself (delayed by one year), we see the following.
We are presently near where we started (just before the last financial crisis, and currently following a trajectory similar to that which we followed in the summer of 2008 (the yellow dot represents where we would be if April ends at today's prices). Given what we've recently experienced in the metals markets and stocks, it is extremely worrisome to consider we are only at the equivalent of mid-summer 2008!
There is more to the story--plotting phase space in only two dimensions can be a little risky because the third dimension may convey a lot of information. To create the third dimension, we apply a second lag equal to the first--so that the third axis represents an observation two lag periods behind the observation plotted on the first axis.
In the above graph, the red curve represents the 2-d projection shown above plotted on a reference plane (z=55)--and the green curve represents the 3-dimensional phase space portrait shown relative to the reference. Where there are green dashed lines between the 3-d and 2-d plots, the 3-d plot is above the reference plane, and where there are red dashed lines, the 3-d plot lies below the reference plane.
In the 3-d plot, we see that the current trajectory (near the bottom of the graph) is quite a bit below the trajectory during the crisis of 2008. It may be that the 2008 financial crisis was one of financial institution solvency, whereas our current crisis is starting to look like one of financial system failure. If this is the explanation for the differing trajectories then my projection is that we are going to see something we haven't seen before.
The gold-silver ratio has the potential to rise to heights never before seen. The reason is that major crises encourage hoarding and flight; and it is much easier to flee with a million dollars in gold than a million dollars in silver.
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It is easier to flee with a million dollars of BitCoin in your pocket.
Bitcoin is nothing but a bubble. It has no value and could go to 0 tomorrow.
Of course it could go to zero. Bitcoin is not a long term store of value. But you don't want to hold it long term. Just long enough to get past the border guards with nothing more than the clothes on your back, and then retrieve your bitcoin over the internet at your destination and turn it back into currency.
Whoever wrote this article is fucked up. Put down the blunt. Step away from the puter. Chill the fuck out.
Silver is more desirable than gold because you can make bullets to fire at those vampires of Wall Street.
Gold would make heavier bullets.
Gold bullets would mushroom better.
Silver works better for vampires, can't argue that point. :)
I call bullshit. Phase shift my ass. You can make any graph say anything. Useless info is worse than no info.
It must have been very satisfying to finish this Anal Extraction.
*The reason is that major crises encourage hoarding and flight; and it is much easier to flee with a million dollars in gold than a million dollars in silver.*
You are much better off trying to jam a diamond or two up your ass than trying to smuggle a million dollars worth of gold onto an airplane.
I knew there as a reason why I'm avoiding airplanes... I'm just not into those kinds of things...
"The gold-silver ratio has the potential to rise to heights never before seen."
I am not against this idea, but these data did nothing to make this case. Either that or I've been baffled by bullshit.. lol
It's easier to flee with a full belly and a plan....
Or at least an exit route...
And better still if there's a wizard in your party willing to tell the Balrog "You shall not pass!"
The loot oughta already be where you plan to flee...
Not sure about these charts, but, I did see a neon "On Sale Now" sign flashing...
OK. Yeah. Sure. What he said. I'm with it. I think.
I don't get it....
OK, short answer: 42
And thanks for all the fish.
Silverbugs will be funny to watch when gold is at 30,000 and silver has yet to break 100. Will the suppression story continue to resonate the way it does now? JPM!!!! HSCB!!!!!! Maybe Max Keiser will rescue them.
The true value of Silver will become known when manufacturers can no longer source it for their products. Some are already feeling the pinch.
And the true value of the products will be known when no one can afford them. Economies of scale in reverse!
The worst mistake you can make is to assume added value based on today's commodities use. PMs are about CURRENCY. Heaping extra stuff on them is like adding "special powers" when no one really will understand those powers in the future and, well, there are no "special powers."
At some point scarcity backfires.
The true value of steel will become known when manufacturers can no longer source it for their products.
The true value of copper will become known when manufacturers can no longer source it for their products.
The true value of zinc will become known when manufacturers can no longer source it for their products.
The true value of brass will become known when manufacturers can no longer source it for their products.
The masses generally do not get complexity, subtlety or higher math, and will attack it accordingly -- unless it comes from a vetted source (like Tyler). Case in point...
1. If TPTB wanted to really mess with Joe Sixpack, they'd indeed suppress silver relative to gold AND have contracts for select industrial applications that bypass the coin/retail market.
2. It takes 3rd grade math to figure out that $1M in gold (at $1500/oz) is 667 oz. (20.7 kg). This is easy to take on a private or charter plane, or ocean yacht. In practice though, as one person pointed out, it makes more sense to sell here and buy 'there', all online.
3. Hate to upset some folks, but when you have that kind of money, the world has LOTS of great places and 'welcoming arms'. That should be obvious, but does not seem to be, judging by a couple of comments.
i am a silver bug.. so who the fuck will mine silver in your scenario?
The same people that mine it now.
Pretty average chart porn but I think I can see a cowgirl and a dog in the last one, so interesting.
Gold and silver are just two fingers on the same hand. No neeed to fight if you have both.
delete
What happens to your historically based relationships when the stockpiles "leased" to meet physical demand dry up? The silver stockpiles aren't there. Silver could go back to its long term historical ration of 15/1. Sprott forecast a couple years ago it would overshoot that to 10/1 or better. Pick your time frame and play you data games but when current leveraged suppression cracks you be shaking your phase-shift down your pantleg.
Someone else stated the ratio was 11:1. Which is it?
Further, how far back does this data go?
AND, how much demand is based in the commodity aspect (industrial production)? I figure that it's best to lop off this part because we have absolutely ZERO idea of what will happen with these demands: well, I kind of do, I see continued contraction, meaning less industrial demand; and as that goes then economies of scale in reverse are going to crush margins and kill that segment of demand.
But why do you keep calling it "ratio" when it's actually a price :-)
http://pricedingold.com/silver/
"Further, how far back does this data go?"
1344 CE
Scroll down to the chart at the bottom of the page.
http://caps.fool.com/Blogs/long-term-gold-silver-ratio/38226
You mention Sprott. Something you should know about really rich guys like Eric:
The reason they are really "rich, and you're not" (to borrow from Jamie Dimon), is that they are amazingly good at looking out for THEIR interests first. Plan accordingly. :-)
I think the BLS and Argentines just found a new way to release data.
There is a need to add one more metal to the chart, lead. That one metal lead, mixed with and abundance of gunpowder and an ample amount of firearms means I don't have to flee to any damn place. My silver and gold will remain stationary in possession. I'm not fleeing over the boarder like some fucking wetback while these pieces of shit try to to steal my country from me and my neighbors.
Fuck that, I will stand and fight. Plot that on the "stick it up your ass and set fire to it" axis.
" Plot that on the "stick it up your ass and set fire to it" axis."
OK, but only if it's in 3-D. And with two, no, three time lags.
Flee? To where?
Don't scorch the Writer, geez.
However, I have perspective others are sounding on:
1. Gold / silver ratio 'going sky high'. No one knows exactly what will happen. We DO know banksters are controlling the price label, and we know they can't control everything, all the time. I mean unless they get Obama to outlaw metals, incite riots and civil unrest (so Obama has an excuse for martial law, dissident camps, etc.), most people are going to stay where they are.
Yea, banksters may leave for awhile, or ship their gold out of town, but FEW people own a LOT of gold. MANY people own some silver. And millions of people have NO metals.
Also, TPTB can price metals, but they can't control the REAL price in an economic disaster. We're already seeing the disconnect! Look at premiums vs spot! Right now silver 1 oz girl scouts are going for $59.95.
Logically if gold becomes scarce, silver will be more in demand. Heck, even copper will likely become a commodity. People will look for anything of tangible value they can trade for food/water/shelter.
It still utterly sickens me this is actually happening in America. Lies and deception to get control of education, press and politics in the US, marxists/commies destroying their OWN country, but the REAL goal is simply making money and getting in with the 'whatever Obama really is' teams to get cash while they can.
"so Obama has an excuse for martial law, dissident camps, etc."
Down-arrow.
Really, WTF does "Obama" want/need an excuse? He's a FUCKING PUPPET.
Gawd, you Party Pussies can be so fucking blind...
THERE IS NO PLAN OTHER THAN TO KEEP DOING WHAT THEY ARE DOING FOR AS LONG AS THEY CAN.
"TPTB can price metals, but they can't control the REAL price in an economic disaster. "
Some people claim that TPTB CAUSED the economic crisis/disaster.
They sure the fuck can, and are, controlling prices. I don't think anyone who can think clearly (without getting all frothy over Obama and commies) thinks otherwise. THE real question is: for how long?
There is NO "solution" because there is insuffiecient PHYSICAL stuff- AND NO, all that's physicall scarce is not PMs! TPTB have controlled things because there's been an ability to promote growth (which, as we know, can never go on indefinitely).
"Heck, even copper will likely become a commodity. "
REALLY? Do you think they can open up markets for it? Copper! Should have thought about That one!
"Logically if gold becomes scarce, silver will be more in demand. "
Merely USING the word "logic" In a sentence does not automatically make the sentence logical.
There's a good possibility that with everyone DEAD BROKE (due to over-leveraging the future) scarcity will mean little to too many people. It gets into the same "confidence" game. If too many people are losing they're not going to want to play anymore: and it becomes just like with what is happening with fiat. Yes, I TOTALLY get it about the physical aspect of PMs; but, humans are fickle. Making statements with such absoluteness creates many suckers.
"It still utterly sickens me this is actually happening in America."
Let me guess, because you LIVE there?
Wake the fuck up. This is global. Further, "America" has had a pretty good run at fucking a lot of the rest of the world, but you wouldn't know anything about that, would you?
It isn't just Marxist commies enjoying treason, it also includes fascist neocons and both have their coterie of useful idiots, dupes and knee jerk voters lacking a political and/or economic clue. They both have their insider elites and some of those elites are playing both sides of the street just to become super rich. Most Ds and Rs fall into this pigeon hole. People are just so dumbed down that they are unable to recognize who and what is actually working for the real public good, not just nationally or locally, but globally really.
Buy 1 ounce of gold at a gold to silver ratio of 1:60, sell it when it reaches 1:100 for 100 ouces of silver (less taxes if applicable - recorded). Wait until ratio drops to 50 sell the 100 ounces of silver to buy 2 ounces of gold. Repeat cycle every 10 years?
Nah permanent backwardation ensues, banks beg congress, congress bans precious metals sales, end of future's market everyone returns to barter and your blackmarket farmer selling vegetables out of the trunk of his car can't break a gold coin, but will take a silver coin.
This author should be banned for plagiarism. Everything here was lifted from Starship SG-1 tv show.
rolla-coasta...of love...rolla-coasta...ooh ooh ooh ooh!
Regarding your graphs sir,...um, what?
I, for one, enjoy a little bit of good chart pron. The answer must be in there, my professor told me. Just stare at it until your eyes bleed.
Are those charts or rorschach tests? I think I see a dolphin in the bottom one.
Are you waxing that dolphin?
The only thing that looks more exciting that silver graphs is lezzer wrestling porn.
+69
For best comment.
I would appoint this guy The Wizard of Booz
look the new etch-a-sketch plotting software works great!
Long Spirograph.
This article makes me think of a free Jazz ensemble playing in front of a theatre full of Abba fans. There's a message there to be understood, but no-one is likely to ever understand one iota.
10/10 for scientific analysis (I think, LOL).
0/10 for communication skills.
Anyone with a worthwhile message, has to first know how to sell it.
PLUS... I'm sick and tired of pundits who do analysis only to have contradictory outcomes. Everything is 'may' this, or 'could do' that. Erm, we can all undertake that kind of analysis with 100% success.
Last chart looks like a great design for a rollercoaster if only the exit was a bit better.....
You know, Kruggers likes scatter plots. I bet he's even had dummy calc.
So yeah, this article is up for consideration for a Nobel Prize. Or is it Navel Lint Prize.
The committee is impressed.
great mathematical article that analyze two different materials which their synthetic price is total fraud.
great mathematical article that analyze two different materials which their synthetic price is total fraud.
Backdrop of price slump of gold and silver becomes visible with a delay
The reduction in positions among “non-reportables” (those market participants who are not required to report their holdings) was considerably more pronounced. These players, most of them retail investors, cut their net long positions between 9 and 23 April by a good 24 thousand to just 133 contracts, putting them at their lowest level in 12 years.
http://homment.com/riJd2La4mU
Once in the low, it can only increase. I bet all those muppets are waiting for the MSM to call them in.
But first, TPTB will need to find some excuse.
If the author could add some links that actually demonstrate some proven, valid uses for this technique in the engineering space, it would add the whole discussion a lot more credibility.
Yes, otherwise it is just modern day crayons and sketch pad...
Isn't your request for validation rather stringent...?
/sarc
The last graph looks like Flipper trying on a g-string with a dildo. Does that signify anything?
Neat charts, looks kinda like a sprayed roach to my simple mind. To assume we know what is going to happen one second into the future is the height of speculation. To think we know what is going to happen next week is the epitome of hubris. Should the lights go out, I will be able to walk into a farmer’s market and buy a cabbage with one round of 7.62 x39. When the dust settles and the local militia has established a semblance of order I will be able to buy a cow with a silver eagle. A gold eagle will buy a modest house. Under that scenario we would probably have lost 80% of our population. A little gold and silver is a hedge against the worst case scenario. If you are buying it as an investment, you are gambling. In the short term you may win or lose. It is just a flip of the coin.
Where will all these people flee to with their million dollars in gold or silver? They tried that recently in cyprus and the police stopped them and confiscated the metal at the border. Further, things get so bad in the US that you have to flee. Where to?
It is fun to listen to you silverheads. "Price is irrelevant!!!" Sure it is....up until the pont you want to sell!
Paper tigers sell, phyzz folks stack!
Where did you read that Confucius? That logic worked well in the 80s!!!
BTW - I didn't sell. I traded for gold at ...oh...much higher prices.
Ron Paul on Gold: No One Knows Value; I'm Buying
http://www.bloomberg.com/video/ron-paul-on-gold-no-one-knows-value-i-m-buying-Mt6HW7s~Sp~lTIfGb87o4g.html
It is even easier to flee with a million dollars in bitcoin. You can send it over the internet or carry it on a thumbdrive.
In summary - Bitcoin.
There is one very interesting correlation (I don't know about causation) that I noticed a couple of years ago.
HELL YES SOMETHING IMPORTANT HAPPENED IN LATE 2005
Iran repatriated its gold, scantly reported at the time:
http://cables.mrkva.eu/cable.php?id=59113
More relevant and very intriguing information about Iran and gold from another Cablegate telegram from the same period:
It sure as hell should protect them!
Source: http://www.cablegatesearch.net/cable.php?id=06LONDON4338#para-6606-6
That third chart looks like a goddamn Ming Dragon boys!!!
Over the past 5 years or so, the Palladium/Silver ratio has been the one to trade. Currently that's in overbought territory.
1980 silver at $50 adjusted for inflation would be $141.96 today.
All I see is butterflies that poop rainbows.
Oh, and a unicorn.
Tha major assumption being that there will be some better place to flee to....
The first gold price plot is a linear representation and no accelleration is apparent. That is not an exponential line. Also, the trend ended two years ago. So, in the author's words, dont say that gold is already increasing in price exponentially. Just isn't. The trend from 2005, though increasing more rapidly, is not exponential. It remains linear even though the slope is steeper. The plot that takes the month-end ratio of the gold price to the silver price and plotts it against a lagged copy of itself (delayed by one year), we see the following....A random walk of a drunk about the mean distance from a lamp post. ITS RANDOM so far as we can see...