The Isoquants Of Gold

Tyler Durden's picture

Submitted by mickeyman via The World Complex blog,

Today's plot shows a six-year scatterplot of the gold price (in USD) vs the USDX index.

The blue curves are hyperbolae of a constant level of gold x USDX. I have placed these for two reasons. Firstly, if gold and the USDX are inversely related, then the time-evolution of the scatterplot will follow one of these curves. Secondly, for companies operating gold mines outside of the US, the product of the gold price and the USDX indicates the real price they are getting for their product.

These equal-product curves, or isoquants, appear to be of some importance in constraining the evolution of the gold price over the past six years. Generally speaking, the price tends to migrate along an isoquant for an extended period of time, before jumping up (or down) to another one, typically in only a few weeks.

For much of 2008 the plot is constrained between the 600 and 700 isoquants, but the system shifted to the 800 isoquant in early 2009. The gold price advanced along the 800 isoquant until about October 2009, before shifting up to the 900 isoquant. The system then evolved along the 900 isoquant for a few months, with the gold price falling and USDX rising, until shifting to the 1000 isoquant near mid-2010. The gold price rose along the 1000 isoquant for nearly a year, whereupon it shifted to the 1100 isoquant, and after battling at that level for two months or so, advanced rapidly, ascending above the 1400 isoquant in September 2011.

A major battle was fought between the 1300 and 1400 isoquants until March of 2013, whereupon the system plummeted to the 1000 isoquant--a level at which it has remained since. The yellow circle near the middle of the plot shows the last month where we dipped below the 1000 isoquant; however today we crossed above it again.

For the time being it looks as though the 1000 isoquant will be the line in the sand for the gold-USDX system. For the gold price to go to $1000, the USDX would have to go to 100. Not impossible, but the world would have to be in pretty dire shape for us to see that, methinks. If the USG is successful in debasing the dollar to win the trade war, we might see a little advance in gold, but I'd expect it to follow the 1000 isoquant for the next six months at least.

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GetZeeGold's picture



Scatterplots make my brain hurt.

Event Horizon's picture

The Good the Bad and the Ugly,,,

The Ecstasy of Gold


Still looking for the Ecstasy of Bitcoin vid....

kliguy38's picture

My kid warned me that he was going on full retard with his etch a sketch to divine a gold price but chit man he made ZH

hedgeless_horseman's picture



An isoquant is a contour line sketched through the set of points at which the same quantity of output is produced while changing the quantities of two inputs. While fucking-indifference curve mapping helps to solve the hoard-maximizing problem of gold bugs, the isoquant mapping deals with the price-manipulation problem of central bankers. Isoquants are typically drawn on a Magic Etch-A-Sketch with each dial representing the two inputs, thus showing the technological tradeoff between cheap plastic toys and the decreasing marginal returns of expensive technical analysis software.

mickeyman's picture

It's only excel. Which is pretty expensive in the new regime.

macholatte's picture


The Isoquants Of Gold

.... and that is what can happen when somebody has way too much time on his hands.


When I take action, I'm not going to fire a $2 million missile at a $10 empty tent and hit a camel in the butt. It's going to be decisive.

George W. Bush

Bastiat's picture

That's some fine stuff, HH. 

kw2012's picture

I was going to post something witty until I saw this post!


Anyway, as an expert scribble reader, I would say that gold is headed for the 1300-1400 range, not the 1000-1100. It's a classic silly string pattern

SAT 800's picture

Exactly. Also, what, exactly, is an evaolution? Is illiteracy an indicator of high learning, now?

Dugald's picture


The new buzz word from academe, it means Evolution modified by a random integer subjunctive, but having modified undertones, which if used in the wrong context can lead to self nullification.


Now have you got it????

kralizec's picture

Sorry man, but how do you think that monkey felt when Bernanke stuck a pen up its ass and asked to see where the gold price should be each day?  That scatterplot is proof of monkey abuse!

Sudden Debt's picture

the gold price is much more organised than you think...


1. first I buy

2. than they screen my computer

3. to the oposite of my trades



SafelyGraze's picture

many people know (or believe) that stores of physical gold are held in secure facilities such as the fort knoxes and the westpoints and the bullion bankses and so forth and so on

but as the isoquants have discovered, the real marketmoving asset is no longer gold. no longer even claims-on-gold as currency.

the new asset is the price of gold. the price, rather than the gold itself.

leading many people like yourself to ask: so just where exactly is the price of gold stored?

is it stored in a data warehouse in utah?

is it stored in the google cloud barge in the san francisco bay?

and if you ask for your prices (or shares therof) of gold to be repatriated, how many years do you have to wait before you get them back.

where can you securely keep your prices of gold in order to guard against theft?


hedgeless_horseman's picture



I printed out some charts of the price of gold on Kitco and made Mrs. Horseman a nice bracelet.  Her friends are very jealous.

DaddyO's picture


Losing sight of the real tangibles in life is the current dilemma.

A day may be coming where tangibles reset the landscape and bring sanity back into view...


SubjectivObject's picture

The reversion to sanity will be insane.

Spumoni's picture

And it will not be televised...

silverserfer's picture

and will only be realized when we find the gold the rothschild family lost in their boating accident

Dugald's picture

Wide spread Insanity in the US of A will pass unnoticed........

MeelionDollerBogus's picture

That's what we haz teh bitco1nz for!

Keyser's picture

All fine and well, until such time that a buyer wants to take delivery. That's where your paradigm falls apart. 

Ignatius's picture

"Scatterplots make my brain hurt."

I suppose it's possible to make a more confusing graph than this, but I haven't seen a more confusing graph than this lately.  And now we have to learn the new word "isoquant"?  Some people have a lot of time on their hands and likely don't have real money problems.

Dr. Engali's picture

Let's do a quick search to see how many times "isoquant" has been used on Zero Hedge prior to today:

Oh look at that it is zero. How do you make a scatter chart out of that?

SubjectivObject's picture

I am not a math regular, but I can understand what he is saying.

The methodology and data support his reasonable hypothesis.

He put himself on record with an uncouched predicton.

I have to think this kind of effort has to be respected.

Ignatius's picture

I'm sure it's sincere, but its conclusions don't graphically jump out.

And then we are in a market where naked short sales are made for the purpose of forcing the price down as opposed to getting best price.

SAT 800's picture

Not only that we have to learn what an evaolution is. That's going to be hard.

MeelionDollerBogus's picture

Just put the right data in & it makes much more sense.
I re-wrote the equation in this scatter-plot ( to be easier to handle:
ln(silver) = gold x 3/2635 + 19/22
usually good for a fraction of a % error, silver off by less than 20 pennies, USD, gold off by no more than $8 most of the time.

new game's picture

scaterplots-new chart porn for only your eyes. 

just when i thought i'd seen enough of the same old shit...

new game's picture

broke many a stick in the good old days. can you say slap shot-goal!!!!!

goldsworthy and the shuffle...

BandGap's picture

This isn't just same old shit, it's just shit. Look at the labels on the axis'. There is virtually no correlation between the value of the dollar and gold prices, unless you want to overweigh the extremes. The price of gold is more a function of political winds than a single, stupid assed variable.

Fucking Etch-a-Sketch math modeling.

MeelionDollerBogus's picture

They work when you put the right data into them:

10 years gold vs silver, scatterplot & comparative performance clearly indicated,  USD.

Dr. Engali's picture

Heh heh heh heh.... He said isoquant.

Ignatius's picture

"Isoquant."  No, no, you don't eat it.

ghengis86's picture

Looks like Michael J Fox made that plot...

GrinandBearit's picture

Charts... Farts  

The current prices are totally artificial and do not reflect reality.  Take advantage of these bargain basement prices and keep stacking as much as possible.



MeelionDollerBogus's picture

scatterplots using the right data show every facet of manipulation.

As do time-series equations on price vs date charts. for example (which I made years ago)

or this,

BlackSea's picture

Invalid. Gold price must be multiplied by AAPL price then divided by oil price then raised to the power of the 10yr Treasury yield.

Now THAT'S the ticket.


MeelionDollerBogus's picture

Know what's scary: I bet if you let an evolved model pop out of something from GEPSoft with those inputs (data, not your math) on a 5-year chart it WOULD pop out a solid model with 95% confidence interval (it evolves the math for you, genetic programming).

One And Only's picture

Looking at that chart makes me think that kitty kitty that purrs on my face got on the keyboard and started dancing.

Sudden Debt's picture

If my kids drew that it would be a representation of their rooms...

fonzannoon's picture

for the past 2 years the gold price has been whatever Goldman said it would be.

GetZeeGold's picture



Only cost like a trillion dollars a year in QE. I call it money well spent.


My grandkids are not so sure..........don't worry younglings......we'll put it back. We promise!

Dr. Engali's picture

I believe you mean currency well spent. After all we all know tat the FRN is anything but money.

MsCreant's picture

How did my kid get ZH posting rights? I saw that one on the fridge the other day, he seemed so proud, I wondered what was up...

Dr. Engali's picture

Clearly this a kids interpretation of congress, because I see clowns.