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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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Mon, 01/20/2014 - 09:37 | 4347827 GetZeeGold
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Scatterplots make my brain hurt.

Mon, 01/20/2014 - 09:41 | 4347837 Event Horizon
Event Horizon's picture

The Good the Bad and the Ugly,,,

The Ecstasy of Gold

http://www.youtube.com/watch?v=1-rHdSWZLpQ

 

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

Mon, 01/20/2014 - 09:49 | 4347858 GetZeeGold
GetZeeGold's picture

 

 

 

Are you under the power of bitcoins?

http://www.youtube.com/watch?v=Kk75J-VwUOU

Mon, 01/20/2014 - 09:58 | 4347882 kliguy38
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

Mon, 01/20/2014 - 10:24 | 4347909 hedgeless_horseman
hedgeless_horseman's picture

 

 

Mon, 01/20/2014 - 10:26 | 4347944 NotApplicable
NotApplicable's picture

Well played, HH.

Mon, 01/20/2014 - 11:09 | 4347949 hedgeless_horseman
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.

Mon, 01/20/2014 - 11:24 | 4348129 mickeyman
mickeyman's picture

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

Mon, 01/20/2014 - 15:04 | 4348709 macholatte
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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

Mon, 01/20/2014 - 21:44 | 4350072 Bastiat
Bastiat's picture

That's some fine stuff, HH. 

Mon, 01/20/2014 - 11:35 | 4348163 mickeyman
mickeyman's picture

Even I upvoted him.

Mon, 01/20/2014 - 11:06 | 4348076 kw2012
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

Mon, 01/20/2014 - 14:32 | 4348620 SAT 800
SAT 800's picture

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

Mon, 01/20/2014 - 17:43 | 4349207 Dugald
Dugald's picture

Evaolution......!

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????

Mon, 01/20/2014 - 09:41 | 4347841 kralizec
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!

Mon, 01/20/2014 - 09:51 | 4347864 Sudden Debt
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

 

 

Mon, 01/20/2014 - 09:50 | 4347861 SafelyGraze
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?

 

Mon, 01/20/2014 - 10:18 | 4347931 hedgeless_horseman
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I printed out some charts of the price of gold on Kitco and made Mrs. Horseman a nice bracelet.  Her friends are very jealous.

Mon, 01/20/2014 - 10:23 | 4347937 DaddyO
DaddyO's picture

+1

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...

DaddyO

Mon, 01/20/2014 - 10:32 | 4347958 SubjectivObject
SubjectivObject's picture

The reversion to sanity will be insane.

Mon, 01/20/2014 - 15:09 | 4348722 Spumoni
Spumoni's picture

And it will not be televised...

Mon, 01/20/2014 - 16:18 | 4348968 silverserfer
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and will only be realized when we find the gold the rothschild family lost in their boating accident

Mon, 01/20/2014 - 18:04 | 4349281 Dugald
Dugald's picture

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

Tue, 01/21/2014 - 16:16 | 4352779 MeelionDollerBogus
MeelionDollerBogus's picture

That's what we haz teh bitco1nz for!
candyman
candyman
candyman!!

Mon, 01/20/2014 - 10:26 | 4347943 Keyser
Keyser's picture

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

Mon, 01/20/2014 - 10:03 | 4347890 Ignatius
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.

Mon, 01/20/2014 - 10:28 | 4347907 Dr. Engali
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:

http://www.zerohedge.com/search/apachesolr_search/Isoquant

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

Mon, 01/20/2014 - 10:37 | 4347970 SubjectivObject
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.

Mon, 01/20/2014 - 10:49 | 4348005 Ignatius
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.

Mon, 01/20/2014 - 14:35 | 4348628 SAT 800
SAT 800's picture

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

Tue, 01/21/2014 - 16:06 | 4352738 MeelionDollerBogus
MeelionDollerBogus's picture

Just put the right data in & it makes much more sense.
I re-wrote the equation in this scatter-plot (http://flic.kr/p/f17z1s) 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.

Mon, 01/20/2014 - 09:36 | 4347828 new game
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...

Mon, 01/20/2014 - 09:42 | 4347840 GetZeeGold
GetZeeGold's picture

 

 

Gold global warming hockey stick chart right here.....we're all dead.

http://www.zerohedge.com/news/2014-01-18/physical-gold-shortage-goes-mainstream

Mon, 01/20/2014 - 09:47 | 4347852 new game
new game's picture

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

goldsworthy and the shuffle...

Mon, 01/20/2014 - 09:49 | 4347860 BandGap
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.

Tue, 01/21/2014 - 16:08 | 4352746 MeelionDollerBogus
MeelionDollerBogus's picture

They work when you put the right data into them:

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

http://flic.kr/p/f5bHkJ

Mon, 01/20/2014 - 09:39 | 4347832 Dr. Engali
Dr. Engali's picture

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

Mon, 01/20/2014 - 12:47 | 4348368 Ignatius
Ignatius's picture

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

Mon, 01/20/2014 - 09:42 | 4347839 ghengis86
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Looks like Michael J Fox made that plot...

Mon, 01/20/2014 - 09:42 | 4347842 GrinandBearit
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.

 

 

Tue, 01/21/2014 - 16:10 | 4352748 MeelionDollerBogus
MeelionDollerBogus's picture

scatterplots using the right data show every facet of manipulation.

As do time-series equations on price vs date charts.

http://youtu.be/s2bgbzraHI0 for example (which I made years ago)

or this, http://youtu.be/sxbdKOKDaOU

Mon, 01/20/2014 - 09:45 | 4347847 BlackSea
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.

 

Tue, 01/21/2014 - 16:12 | 4352762 MeelionDollerBogus
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).

Mon, 01/20/2014 - 09:46 | 4347851 One And Only
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.

Mon, 01/20/2014 - 09:47 | 4347853 Sudden Debt
Sudden Debt's picture

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

Mon, 01/20/2014 - 09:48 | 4347855 fonzannoon
fonzannoon's picture

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

Mon, 01/20/2014 - 10:02 | 4347886 GetZeeGold
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!

Mon, 01/20/2014 - 10:06 | 4347899 Dr. Engali
Dr. Engali's picture

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

Mon, 01/20/2014 - 09:51 | 4347866 MsCreant
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...

Mon, 01/20/2014 - 09:53 | 4347869 Dr. Engali
Dr. Engali's picture

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

Mon, 01/20/2014 - 09:55 | 4347871 RaceToTheBottom
RaceToTheBottom's picture

The Pablo Picasso of Manipulation.

Mon, 01/20/2014 - 09:55 | 4347873 papaswamp
papaswamp's picture

must manipulate lower in order to buy needed gold to fill the repatriation requests......

Mon, 01/20/2014 - 09:58 | 4347878 fijisailor
fijisailor's picture

Here's a new way to buy gold in bill form you can put in your wallet.  Costs about 2X spot.

http://shop.valaurum.com/Peak-Prosperity-Aurum-1-10g-PP1.htm

Mon, 01/20/2014 - 10:03 | 4347888 GetZeeGold
GetZeeGold's picture

 

 

Costs about 2X spot.

 

Is there a stict limit?

Mon, 01/20/2014 - 10:05 | 4347893 fijisailor
fijisailor's picture

How should I know?  Order some and see or send them an email.

Mon, 01/20/2014 - 10:13 | 4347911 GetZeeGold
GetZeeGold's picture

 

 

No way.....I tried to buy six 24K mil clad Obama coins.

 

They took me out back and kicked the crap out of me.....no thanks.

Mon, 01/20/2014 - 10:34 | 4347960 fijisailor
fijisailor's picture

I'm not selling them.  Just thought it was interesting.

Mon, 01/20/2014 - 10:36 | 4347967 MsCreant
MsCreant's picture

"Is there a stict limit?"

Very funny.

If you put something out there like that as a joke, and then you have takers, it must be tempting to try and get them a product so you can get their money.

 

Mon, 01/20/2014 - 11:59 | 4348223 Tall Tom
Tall Tom's picture

Ever hear of Chris Martenson and Peak Prosperity?

 

He has had Guest Posts on ZeroHedge. THAT IS WHO IS ISSUING THESE NOTES.

 

1/10th Gram is a very handy small unit of Gold for small transactions in a POST US Dollar World.

 

Right now the Gold Content of one of the Notes is worth about $4.00 USD. That is about a Gallon of Gas.

 

One Gram, at $40, is Ten Gallons...or a Fill Up.

 

You must start to understand that the US Dollar is not going to last forever. It is a DYING CURRENCY. Valuing Gold in Dollars is something that you will have to abandon. Valuing anything in US Dollars you will have to abandon as the US Dollar slips into irrelevance.

 

I cannot believe that you guys have trashed this series of posts from fijisailor. You are still caught up in the US Dollar paradigm.

 

It is going to end. It is going to end soon. It is going to end badly.

 

If you are not MENTALLY PREPARED FOR THIS END then you will be amongst the many whom will be victims...EVEN IF YOU HAVE GOLD. It will be far too easy to separate you from your Gold as you have no concept of the true value.

 

YOU BEST WAKE THE FUCK UP. THIS IS NOT A JOKE.

Mon, 01/20/2014 - 12:34 | 4348337 fijisailor
fijisailor's picture

Yes it is amazing the lack of understanding for new ideas.  

Mon, 01/20/2014 - 13:22 | 4348437 Mercuryquicksilver
Mercuryquicksilver's picture

I had seen these reviewed on a different site but lost the link. Thanks for posting. Not having researched these yet, my biggest concern would be recognition/acceptance because they are so new and forgery later on if they become popular. These gold bills will be heavily scrutinized by USG.

Mon, 01/20/2014 - 14:48 | 4348657 Tall Tom
Tall Tom's picture

They are not "Dollar" Denominated. That is where the Liberty Dollar ran into trouble.

Mon, 01/20/2014 - 19:07 | 4349528 MsCreant
MsCreant's picture

Right now I can still use my dollars to get stuff. 2X spot looked like a scam to me. Please tell me why it is worth 2X spot? I really am taking your challenge and trying to have an open mind. 

There is silver...

Mon, 01/20/2014 - 10:59 | 4348053 fijisailor
fijisailor's picture

Let me guess.  You're one of the ignorant downvoters who don't think that new technology and ideas are interesting.

Mon, 01/20/2014 - 10:04 | 4347892 Rising Sun
Rising Sun's picture

I just can't believe what I can do with my spirograph.

Tue, 01/21/2014 - 15:58 | 4352681 MeelionDollerBogus
Mon, 01/20/2014 - 10:17 | 4347915 Quinvarius
Quinvarius's picture

This is a load of horseshit.  Even if that chart made sense, it is looking for some sharp correlation between two different manipulated markets. 

Mon, 01/20/2014 - 14:50 | 4348636 akak
akak's picture

It is actually horseshit cubed, as the so-called "US Dollar Index" is the most flawed, artificial, misleading and meaningless of metrics.  It is nothing but a contrived and outdated comparison of the exchange rates (NOT value!) of the US Dollar vs. a handful of other similarly and simultaneously depreciating fiat currencies, based on the relative trade weighting between the USA and the issuing countries back in 1970.  It does not even include the currencies of the USA's #1 and #2 trading partners, China and Canada.  The DXY is in NO WAY a measure of the value (purchasing power) of the US dollar, not even slightly, so any putative correlation between it and something of real value, such as gold, particularly over a multi-year or multi-decade time frame, is going to be automatically bogus by definition.

Tue, 01/21/2014 - 15:57 | 4352676 MeelionDollerBogus
MeelionDollerBogus's picture

from the same manipulators. THAT is important.

Mon, 01/20/2014 - 10:30 | 4347950 Fuh Querada
Fuh Querada's picture

BullSHEEIT. Someone let a 10 -year old loose on a stats graphic package.

Tue, 01/21/2014 - 15:53 | 4352664 MeelionDollerBogus
MeelionDollerBogus's picture

Not bullshit, just needed several of them. Like any good hypothesis one must seek to DISPROVE it.
He didn't go far enough in disproving the USDX vs GOLD.
What would have worked is plotting scatterplots of ALL major fiat prices of gold in the same time window.
That would show when one particular currency's price weakness or strength is out of whack, therefore showing when they should be expected to move all together, up or down.

Mon, 01/20/2014 - 10:51 | 4348016 toros
toros's picture

I see a guy eating a sandwish.

Mon, 01/20/2014 - 11:03 | 4348066 Sudden Debt
Sudden Debt's picture

KEEP IT TOGETHER MAN!!

YOU CLEARLY NEED A 4 WEEK STATE FUNDED VACATION TO MEXICO!

Mon, 01/20/2014 - 11:16 | 4348105 MsCreant
MsCreant's picture

Actually he is drinking your milkshake.

Tue, 01/21/2014 - 15:52 | 4352654 MeelionDollerBogus
MeelionDollerBogus's picture

preposterous! balderdash!
http://flic.kr/p/bkPsiz

Mon, 01/20/2014 - 11:29 | 4348137 Woodhippie
Woodhippie's picture

Looks Like John Maddens' drunk again.  Do I buy now?  Sell now?  Or just go up the middle?

Mon, 01/20/2014 - 12:07 | 4348260 Martel
Martel's picture

Hyperbolaes, isoquants? Just admit it, you gave alcohol to a dog and fixed a GPS tracker on its collar.

Mon, 01/20/2014 - 13:04 | 4348391 fuu
fuu's picture

Are you sure you put all the numbers in right? A few weeks ago I fat fingered a number in a table and though US Mint gold sales were down YoY. Just askin'.

Tue, 01/21/2014 - 15:48 | 4352634 MeelionDollerBogus
MeelionDollerBogus's picture

Is that so? Drutter (youtube) put together a table from the US mint, and chart he made of the data, showing record sales.
http://www.youtube.com/watch?v=x53FMKYZVhU
http://www.youtube.com/watch?v=eAJHvRwDpQk

Mon, 01/20/2014 - 13:13 | 4348416 Kirk2NCC1701
Kirk2NCC1701's picture

If we bracket out the smarmy remarks by people who know more about meth than math and relationship mapping, and with whom it's best to avoid an argument, it comes down to ONE simple thing:

Is he right about the current SIDEWAYS market on gold continuing for another 6 months?  Seems plausible.  TPTB will continue to suppress/manipulate AU prices as long as it suits them and as long as they can.

BTW, the PBOC says "shay shay nee" for keeping down the price of their AU buying.  So do serious Stackers.

Mon, 01/20/2014 - 13:26 | 4348442 Mercuryquicksilver
Mercuryquicksilver's picture

Agree, its all about his conclusion... 6 months of nothing. If his conclusion were 6 months of increase then all the haters would change their tune and start worshiping the chart.

Tue, 01/21/2014 - 16:04 | 4352598 MeelionDollerBogus
MeelionDollerBogus's picture

"Firstly, if gold and the USDX are inversely related"
They're not. This chart shows it: http://flic.kr/p/9KeGPR
DXY aka USDX is a poorly weighted index that doesn't change to match foreign currency holdings, total fiat out in the world of each currency in the index, or reacting to the trade-flows that come from those factors plus margin calls & carry trades.

ZIP files of CSV text for 10 years of data:

http://www.fxhistoricaldata.com/

Get each one for XAU gold. pairs are XAUUSD, XAU___ etc. The link is showing only for XAUUSD but the URL can be edited manually.

http://www.fxhistoricaldata.com/XAUUSD/

http://www.fxhistoricaldata.com/XAUEUR/

http://www.fxhistoricaldata.com/XAUAUD/

http://www.fxhistoricaldata.com/XAUJPY/

http://www.fxhistoricaldata.com/XAUCAD/

etc.

Scatterplot that.

THAT is the answer needed.

This bypasses the errors induced by the faulty built-in math for how DXY is calculated vs how real markets actually work for gold prices.

Do NOT follow this link or you will be banned from the site!