Dust flux, Vostok ice core

Dust flux, Vostok ice core
Two dimensional phase space reconstruction of dust flux from the Vostok core over the period 186-4 ka using the time derivative method. Dust flux on the x-axis, rate of change is on the y-axis. From Gipp (2001).

Monday, June 3, 2013

Gold-silver ratio at its lowest area of stability

I've been working on extending some of my commodity price time series farther back in time and will be reporting on them as I go. Currently I've pushed rice, copper, silver, and gold monthly closes back to 1988 (mainly having trouble finding a consistent record for copper beyond that).

Today we'll look at the gold-silver ratio from January 1988 to the present.

Hopefully this looks bigger if you click on it.

To investigate the dynamics I'll construct a time-derivative phase space portrait. This is a scatterplot of the GSR vs its rate of change (averaged over five months).

Looking at the time-derivative phase space portrait, we can see there have been five areas of stability for the gold-silver ratio in the past 30 years. Those ratios are at approximately 53, 61, 65, 73, and a weak one near 88.

For those who tell me that the proper gold-silver ratio is 15--or maybe 16--my answer is "show me".

It was true historically--but the present system operates on a different dynamic. It seems pretty reasonable to assume that the last 30 years describes the current dynamics of the gold and silver markets. The gold-silver ratio has been nowhere near 16 in that time.

The only way to return to a ratio of 15 or 16 is to return to a time when the gold and silver prices are defined by central financial powers--which is to say, a political solution. Perhaps such a political change is coming. I'm not in a position to say, as Messrs Bernanke and Obama still haven't invited me for a round of golf.

Provided no such political change comes, any decrease in the gold-silver ratio is likely to be a short-lived spike, but long periods with a much higher ratio are possible.

Looking at the above graph, when we are at the far right it is time to buy silver, and when we are at the left it is time to buy gold. Presently we are closer to the left than the right.

1 comment:

  1. "It seems pretty reasonable to assume that the last 30 years describes the current dynamics of the gold and silver markets. "

    I'm not sure I agree with that.

    In researching the silver bull/bear case I looked through the historical Production, Consumption and inventory data.

    It seems that since the end of WWII we have have been consuming giant silver stockpiles up until around 2007 when mine and scrap production went into surplus. It's a complex issue, I certainly don't understand it all but that fact must have a bearing on the ratio.

    Other things to consider are that since the bulk of silver stockpiles have been consumed, the total ounce to ounce ratio of above ground metal is about 4.5 to 1.

    ** that number is an estimate

    -- Available ounces in bullion form are actually less than gold

    I will have to go back to get sources on this data, sorry, off the top.