I have seen Nick Barisheff writing about gold on various forums for some time now, he is a consistent and clear writer about gold and macroeconomic conditions. He has a brand new (2013) book out now: $10,000 Gold. I saw the book advertised from my web browsing, but had been unable to find it in bookstores, although Barnes and Noble said they could order it for me. Ah, no thanks, I prefer to look at a book first...
He is the founder and CEO of BMG Bullion Management Group, Inc. of Toronto, Canada. BMG provides buying gold bullion and stores it on behalf of their customers. It appears like a company similar to those who offer allocated gold (where the Buyer owns a specific bar, and the Custodian stores it for a fee). Here is their blog:
blog.bmgbullion.com
His idea of allocated gold being safer than personal possession is probably because (I believe) he is aiming much of this book at large investors who may not be able to safely store (?) a lot of gold. Allocated gold, of course, is not fully safe either (ask MF Global clients who were robbed of their allocated gold).
Barisheff is highly respected and can be seen from time-to-time at 24hgold.com, among other websites.
***
Barisheff presents many reasons why he believes gold will go to $10,000 per ounce or more, but the three main reasons he analyzes in depth are government debt (by far his biggest reason), population growth and peak resources (especially oil). He also ties demographics (our aging population), job outsourcing, foreign rejection if the US dollar in recent & likely future international trade, and the movement of gold into stronger hands of the East (China and Russia).
After the Introduction, he starts in with gold and monetary history, showing many elements most of us are already familiar with (thousands of years of gold being valued by humanity, the debasement of the dollar over the last 100 years since the Federal Reserve was created, etc.).
Throughout the course of his book he refers to many other well recognized experts in the gold community (John Embry, Jim Sinclair, Chris Martenson, Andrew Maguire, Murray Rothbard, Chris Powell and John Mauldin. Some of these quotations I will mention below.
With such a nice big fat number like $10,000 per ounce, I was hoping that Barisheff would at least mention or analyze even briefly FOFOA's Freegold ideas ("$55,000" per oz, read his blog: fofoa.blogspot.com), but he does not, even though he shares many of FOFOA's ideas. It is important to understand that FOFOA studies a narrow part of the whole realm of gold in great detail and with what appears to be impeccable logic. Maybe he did not want to venture into the arena of $55,000 gold thinking it might scare off potential book buyers..., but more likely he does not believe FOFOA's arguments (or perhaps has never even heard of him). Note that Jim Sinclair has waded somewhat into Freegold territory predicting $50,000 gold, but for somewhat different reasons and dismissing some of FOFOA's arguments and dissing some of his followers...
In general, his book is a little dense, especially for those not familiar with the various dynamics of gold. The book may be somewhat dense, but persistence is very worth it, Barisheff does a fine job of making the case of buying and holding physical gold.
His discussion of the GLD ETF is very detailed for example, the GLD is very complex, the only other serious discussion of how the GLD works was written by the mighty FOFOA...
He also discusses "financial repression" (inflation, central bank control of [low] interest rates, compulsory funding, and capital controls) in great detail, this alone is almost worth the price of the book. Financial repression is essentially a set of policies aimed at making savers pay the price for excessive government debt (irresponsibility).
Barisheff provides many graphs and illustrations to make his ideas clear.
***
Barisheff is fully convinced that the powers that be ("TPTB") are using "management of perception" to restrain demand for gold (that is, lie about gold and its safety). That concept of perception management is similar to Jim Sinclair's "MOPE" (Management of Perception Economics).
He is also one that believes and clearly states that the governments, banks and brokers are lying to us. As do I. They are lying to us, and the personal responsibility is each of ours to keep ourselves financially secure. Silver and societal analyst Chris Duane:
"No one really cares about you and no one is coming to save you." This is the truth.
***
Even though it is too much debt (causing inflation, and big price movements in all our consumer products are coming...) that is his main argument, he quotes many different gold and other respected financial analysts, I present some here (many of you have seen these or variations) on the precarious and predatory nature of our financial system:
Barisheff himself (commenting on the real estate boom):
"Perhaps most telling was the constant refrain of investment advisers that "this time it's different." It is never different."
Ex-Goldman Sachs executive Greg Smith (emphasis mine):
"I believe I have worked here long enough to understand the trajectory of its culture, its people and its identity. And I can honestly say the environment now is as toxic and destructive as I have ever seen it."
Standard Chartered Bank (Page 158), (re gold is a better investment than gold miners):
"There are few large deposits, and most mines have difficult geological and metallurgical conditions."
Erste Group (Page 160, from June 2010):
"From 1830 to 1920 the average content of gold per tonne was 22g, today it is 0.8g per tonne. On the one hand this is due to the economies of scale, the increased gold price, and new technologies (heap leaching, etc.), on the other hand the easily extractable, high-grade deposits are already depleted."
***
But, it is NOT the experts he quotes that are the most valuable nuggets (sorry!) of his book. The clearest case is that very high, and ever growing exponential debt, is what will wreck the system and propel gold to very high prices.
***
Barisheff sees real value (as do I) in silver and platinum, where FOFOA does not (FOFOA's single m,ain reason he does not is that the world "has already chosen" its store of value, the central banks hold gold, not silver or platinum -- although I am grossly over-simplifying FOFOA's reasoning).
Gold likely will have a huge "reset" upwards in value, I believe that it will. Silver and platinum likely will not go along for the ride (or at least most of it). But, I do not know this, and I do not know the future, however logically explained.
***
I have but small nitpicks with Barisheff's book:
1) I would like to have seen FOFOA's revolutionary ideas discussed. FOFOA is clearly one of the top gold analysts in the world, and his ideas are so revolutionary that they need to be debated in detail. (For example, FOFOA would argue that Erste Group's comments above on fewer and lower-grade gold mines are NOT very important, due to the very high stock-to-flow of gold)
2) Page 178, the silver was taken from our QUARTERS in 1965 (not nickels).
3) I myself believe that individuals should store their own gold (securely) if at all possible rather than using gold storage services (allocated gold), even services as his own BMG Bullion Group.
But, other than the above three minor quibbles, this is an important and well-written book that all smart, independent-thinkers should own.
I cannot recommend this book more highly to all who have at least some financial literacy. This is about as high a recommendation that I can give.
If you have any doubts about our financial system, and are not owners of gold, this is a "must read" book that speaks the truth.
Showing posts with label gold price. Show all posts
Showing posts with label gold price. Show all posts
Sunday, June 23, 2013
Thursday, April 4, 2013
Danger In Predicting Precious Metals Prices
This is the first of an occasional series I will be writing over the next several weeks re predictions, data analysis and similar subjects. For several weeks I have been doubtful about the use of most predictions that would truly guide us in planning our financial security.
At this point, I read predictions and just use them as ideas for further thinking... I will be discussing the rather small value of predictions based on three books I have recently finished in another article that I will publish in the days to come.
I would like to look at the dangers of making decisions about purchasing gold, as well as silver and platinum, based on predictions. Mostly I examine predictions in the short-term, longer-term I think we can see trends that can be useful that can guide us in buying gold...
***
Here are a pair of charts that will give some context to my comments below re predicting the price of gold (as always, *click* on any image for better view). This first one is the price of gold in US$ (through 3 April 2013) over the past two years (both charts from stockcharts.com, annotations mine on the second chart). Note that there has been "resistance" around about $1570 or so for almost a year and a half (I do not "do" technical analysis, but the price does look kind of bearish here).
Some of my readers are into technical analysis, perhaps someone will pass along comments re the above chart.
This next chart shows gold prices over the last six months. Many of the technical indicators look bearish to me (again, T.A. comments are welcome). But, it is not my point to look at the technicals, I would like to illustrate how I would have been wrong if I had been forced to predict the price of gold on April 1...
The pair of green bars above intersect at the date of April 1 and a gold price of about $1595. If I had been forced to make a prediction in public, it is highly unlikely I would have foreseen the big price dip over the past three days...
***
I have often noted, at pmbug.com and at Zero Hedge, that when I buy gold, the price seems to "almost always" drop in the days immediately thereafter... I have not systematically looked at this, however, and it is possible that yes, the price drops, but that might be the next day, or after three days or after a week... I just not have kept track. This does lead to a problem though, an issue I have noted before:
"cherry-picking (a) time frame(s)"
Just the above statement above should be clear enough so that you know what I mean. If I buy (which is not really a prediction), "and the price goes down soon afterwards", well that statement does not really mean much... Of course the price will likely go down if I wait some time...
The point I am trying to make here is that my purchase decisions probably do not have any predictive power at all. This would also likely be true of any predictions I would make as well.
***
N. N. Taleb (Antifragile) and Nate Silver (The Signal and the Noise) in their books have both pointed out how bad the track records are of people who make predictions are, even for so-called "professionals". I will be examining these two books and what we can learn from them regarding prediction (dangerous!) vs. identifying risks and vulnerabilities (and then fixing those, which is in essence what both authors recommend rather then predicting "Black Swans").
***
Note that even while I have many doubts about the value of predictions about the price of gold in the short-term, I have many fewer doubts about further into the future. George Friedman wrote a pair of books over the past couple of years in which he outlines his guesses as to what the world will look like in 100 years (the first book) and what it would look like in 10 years (his second). He is more confident that he has the general trend better for 100 years than for the next 10. Why? Fundamentals... He believes in geography and demography as being important over the longer haul.
For similar (fundamental) reasons, like our huge deficits and debts, I am confident that the price of gold will go way up as the consequences of the decisions made by our leaders become more clear over a longer time-frame.
At this point, I read predictions and just use them as ideas for further thinking... I will be discussing the rather small value of predictions based on three books I have recently finished in another article that I will publish in the days to come.
I would like to look at the dangers of making decisions about purchasing gold, as well as silver and platinum, based on predictions. Mostly I examine predictions in the short-term, longer-term I think we can see trends that can be useful that can guide us in buying gold...
***
Here are a pair of charts that will give some context to my comments below re predicting the price of gold (as always, *click* on any image for better view). This first one is the price of gold in US$ (through 3 April 2013) over the past two years (both charts from stockcharts.com, annotations mine on the second chart). Note that there has been "resistance" around about $1570 or so for almost a year and a half (I do not "do" technical analysis, but the price does look kind of bearish here).
Some of my readers are into technical analysis, perhaps someone will pass along comments re the above chart.
This next chart shows gold prices over the last six months. Many of the technical indicators look bearish to me (again, T.A. comments are welcome). But, it is not my point to look at the technicals, I would like to illustrate how I would have been wrong if I had been forced to predict the price of gold on April 1...
 |
***
I have often noted, at pmbug.com and at Zero Hedge, that when I buy gold, the price seems to "almost always" drop in the days immediately thereafter... I have not systematically looked at this, however, and it is possible that yes, the price drops, but that might be the next day, or after three days or after a week... I just not have kept track. This does lead to a problem though, an issue I have noted before:
"cherry-picking (a) time frame(s)"
Just the above statement above should be clear enough so that you know what I mean. If I buy (which is not really a prediction), "and the price goes down soon afterwards", well that statement does not really mean much... Of course the price will likely go down if I wait some time...
The point I am trying to make here is that my purchase decisions probably do not have any predictive power at all. This would also likely be true of any predictions I would make as well.
***
N. N. Taleb (Antifragile) and Nate Silver (The Signal and the Noise) in their books have both pointed out how bad the track records are of people who make predictions are, even for so-called "professionals". I will be examining these two books and what we can learn from them regarding prediction (dangerous!) vs. identifying risks and vulnerabilities (and then fixing those, which is in essence what both authors recommend rather then predicting "Black Swans").
***
Note that even while I have many doubts about the value of predictions about the price of gold in the short-term, I have many fewer doubts about further into the future. George Friedman wrote a pair of books over the past couple of years in which he outlines his guesses as to what the world will look like in 100 years (the first book) and what it would look like in 10 years (his second). He is more confident that he has the general trend better for 100 years than for the next 10. Why? Fundamentals... He believes in geography and demography as being important over the longer haul.
For similar (fundamental) reasons, like our huge deficits and debts, I am confident that the price of gold will go way up as the consequences of the decisions made by our leaders become more clear over a longer time-frame.
Thursday, June 21, 2012
Making Simple Models With Two Math Functions
I am currently reading a book (The Age of the Unthinkable, by J. C. Ramo) that in parts discusses how limited mathematical models are in replicating and studying complex systems. Economists (and many others) have been building models to help explain many things: our economy, movements in the financial markets, international relations and many other things. The math behind these models can be very complex, and yet many of these models make bad assumptions and do not take "surprises" into account.
Many newer models are evolving into towards "probabilistic" models, that is, models that take in to account that various outcomes.
In this article, I will discuss using two closely related mathematical functions that make useful (if limited, and limited to simple systems). They are the "y = ln(x)" and the "y = e^x" (aka y = exp(x) or "e to the x-power"). Much of this discussion is based in part from two of my earlier articles (http://robertmixblog.blogspot.com/2012/01/exponential-growth.html and http://robertmixblog.blogspot.com/2012/03/marginal-utility-and-gold.html).
***
I have "copied & pasted" the below, the heart of my "Exponential Growth" article. These graphs model inflation and growth of the US National Debt.
[clip]
All my graphs and comments below are not the exact numbers (which would be disputed anyway), but are close enough to make the lessons clear.
This first graph illustrates what happens in a constant 3% inflation from 1913 - 2012. 3% is close to the average rate of inflation since 1913, but is NOT the correct figure, but it is close enough. A hammer that cost $1.00 in 1913 would cost over $18.00 today, given that 3% inflation (blue series data points). The red data points show a 3 cent (not 3%!) fixed increase each year. I put the "red" data in because that would be what would have been PERCEIVED by a hammer buyer looking at a price change over a year or two (at least for the early years). CLICK on any of the graphs for a better view.
The next chart is "kind of the inverse (1/e^x, which I believe is also the "exponential distribution")" of the above and may be more familiar looking. It shows the value of the dollar falling vs. the 1913 dollar. Most researchers who have prepared a similar graph to the below usually arrive at a final end point of the 2012 dollar being only worth 3 cents. In my case here (using a constant 3% inflation), the dollar has fallen in value from 1913 - 2012 to about 4 - 5 cents:
Again, I picked a close to 3% inflation as "about right" for the period 1913 - 2012, so my graph and end result is different than what other researchers have put out there (again, this for educational purposes here).
This next graph extends the first graph out to the year 2032 (twenty years from now). You may be thinking two things:
1) 20 years, that's a long time. My response, look how the last 20 years have flown by...
2) That curve doesn't look so bad. My response, please look at the vertical scale, a $34 hammer in 2032 vs. $18 now...
The red data points are the same, a three cent increase each year.
The next graph is an extension out to 2062. Yes, I know that it is unlikely that we will see 3% constant inflation from now until then AND that 2062 is a year for our grandchildren, but it illustrates well what happens in "the out years" (note that the $1.00 1913 hammer is now over $80):
I now turn our attention to the US National Debt, a current figure that is in the Debt Widget above. Again, this debt widget throws off a number which is different than the approx. $15.2 trillion typically seen elsewhere, but it certainly close enough. The below graph shows what would happen if we allowed our national debt to grow at 11%, which by some rough-and-ready calculation is what I derive from 2007 until now. This 11% growth is probably conservative (low) for the interval since 2007, and would be much disputed, but it is at least approximately right and useful enough to illustrate our plight. Note that our debt would be at over $70 trillion dollars by 2026, a mere 14 years away (a mere 14 years for long-term thinkers anyway!). Note that I started with 2007 debt at $9.8 trillion, it has grown a little faster up through today than my graph shows (that's why I said recent growth in our debt of 11% is likely conservative = a low growth rate).
In the next graph I extend the time frame out some more to 2036:
We would have a $200 trillion dollar national debt in 2036. Obviously that is not going to happen, unless we hyperinflate. But, it is HARD for politicians to stop spending, so a scenario like the above (11% growth of national debt) is possible even if very unlikely. Predicting things out to 2036 is really a fool's chore, I just illustrate here what would happen given 11% growth in the debt, even if this scenario will not happen.
Let's play pretend one last time (or have a "Thought Experiment" for finicky adults who do not like to play). "Let's say" that in a moment of relative panic and seriousness that our politicians in 2017 (after Obama's second term or after Romney's first term) decide to get "really serious" about our debt. I mean it, really serious! And, let's say they are SO serious that they decide limit the growth of government debt by 5% per year (as the looming debt growing at 11% is starting to look scary even for politicians...). They are SO SERIOUS that they get a Constitutional Amendment through limiting growth of the debt to 5% a year! Wow! That's pretty serious! Well, that sounds pretty good, doesn't it? And 5% is not so much, no? Just a little bit over our projected economic growth rate. Hallelujah! Hallelujah!
Well, let's see:
Mmm. In studying this one, we see the debt still going up at a 5% rate after 2017. Look carefully at the "kink" in the graph in the year 2017 (just after the "2015" label). The curve then grows markedly less steeply than just before in 2014, 2015 and 2016. But, take another look at 2036 (when a lot of us may still be alive), the debt has grown to over $70 trillion.
[/clip]
***
The below is a similar clip from my "Marginal Utility And Gold" article. In that article I discuss "marginal utility", an economic term with how much you enjoy the next purchase of something that you enjoy, "units of happiness or satisfaction" if you will.
[clip]
Let's do one of my beloved "Thought Experiments" here to explore this graph. "Let's say" you are the head of a happy household with FIVE CHILDREN (are you reading this Amy?), and let's also say that you just won a decent amount of money from your local lottery (say $1,000,000 free and clear, in cash now, taxes already paid). Let's also assume that you are middle class, not deep in debt and have your retirement money put aside OK. So, you are free to spend the money!
You determine that your major purchases are to be to upgrade your transportation, you deserve it, so why not? So, before you head out the door, you are at the very beginning of the above graph. You decide to buy a BMW! Wow, that felt good, didn't it? You are now at that next point on the graph, shared by the blue square and the red dot. The Y-axis is your "utility", how good you feel being a BMW owner. You got a nice chunk of utility from buying the car. So, you decide to buy your wife as well! Smart move, she is likely to be very happy too. Now, take a close look at the graph to see WHAT it is charting. The red dots are your TOTAL happiness (utility) from buying the two (for now) cars. The blue squares show your marginal utility, that is how much EXTRA pleasure you got from your most recent purchase. You will note you got almost as much pleasure from buying that second car as from the first. That is still pretty good though.
You then decide that your oldest child gets to have a BMW as well, s/he's a good kid, right? So you buy BMW number three. But, to be fair, you decide to buy EACH one of your children in turn a new BMW. At this point, you are probably not getting any extra happiness from that seventh car! And THAT is where the blue square is there at zero (no extra happiness) and the red dots are as high as they are going to go. Let's say you buy yet another BMW... You will likely NOT derive any utility here, in fact, if this Thought Experiment follows this graph, you would LOSE utility (be LESS happy) because where are you going to park that eighth car...?
Most products and services are like this. If you like Big Macs, that first one is yummy! The second will likely fill you up, that is likely to be as much as you want (maximum utility). The third Big Mac would likely make you sick...
***
But, gold is different. I mentioned near the very top of this article that I responded to two new buyers of precious metals. I told them both that AT LEAST FOUR TIMES that I had reached a convenient "round number" of ounces of gold that I wanted to hold, and that would be that. I would not need anymore. But, soon thereafter, I found that, well yes, that I could buy just a little bit more gold.
In other words, at least four times I thought that I would have enough gold to keep me happy only to find I wanted more...
So, gold would NOT follow the above graph from wikipedia. My best guess is that gold would follow a path similar to the "y = ln(x)" curve. Where the Y-axis is total utility and the X-axis increasing gold ownership through time. The ln(x) curve is the INVERSE of the exponential curve (the e^x, "e to the x power"). There are two graphs below, the first one is ln(x) up to 500 oz of gold owned and showing a "utility" of about 6.1. The second graph shows ln(x) out to 5000 ounces, with a utility of about 8.2.
Three quick notes about the above two graphs. The first is that I put in "Y-axis" values below zero because that is the actual way the ln(x) curve is. Secondly, note each unit of "utility" is worth a LOT (5000 oz of gold is approximately 206 lbs of gold, troy ounces remember)! Third, take a good look at the SHAPE of the two curves, they are essentially identical! They scale exactly the same, just like the more well known exponential curve. If I am interpreting this right, marginal utility of increased gold holdings scales very nicely all the way up the curve!
[/clip]
***
I mentioned up there in the exponential growth part that the inverse of e^x is the 1/e^x, the traditional way that we non-math majors think of the inverse ("one over (the function)").
There is another way to think about y = e^x and y = ln(x) however. These two functions are the inverse of each other in another way. They are mirror images of each other about the "y = x line". See below graph:
The blue diamonds above are "y = exp(x)", the red squares are "y = ln(x)" and the green triangles are "y = x". Note that ln(x) and exp(x) do indeed mirror-image each other off of the "y = x" line. Pick a convenient value of y or x (say 15), and note that the distance from (15,15) to each curve is the same (I leave proof of this as an exercise for the reader).
The exponential function is well known for modeling many phenomena. I have to think that its inverse, the natural logarithm should model some things we see as well.
***
Here is a blog link to a guy writing on kind-of similar pieces as the above. It is worth your while to take a look:
https://pearlsforswine.wordpress.com/
Many newer models are evolving into towards "probabilistic" models, that is, models that take in to account that various outcomes.
In this article, I will discuss using two closely related mathematical functions that make useful (if limited, and limited to simple systems). They are the "y = ln(x)" and the "y = e^x" (aka y = exp(x) or "e to the x-power"). Much of this discussion is based in part from two of my earlier articles (http://robertmixblog.blogspot.com/2012/01/exponential-growth.html and http://robertmixblog.blogspot.com/2012/03/marginal-utility-and-gold.html).
***
I have "copied & pasted" the below, the heart of my "Exponential Growth" article. These graphs model inflation and growth of the US National Debt.
[clip]
All my graphs and comments below are not the exact numbers (which would be disputed anyway), but are close enough to make the lessons clear.
This first graph illustrates what happens in a constant 3% inflation from 1913 - 2012. 3% is close to the average rate of inflation since 1913, but is NOT the correct figure, but it is close enough. A hammer that cost $1.00 in 1913 would cost over $18.00 today, given that 3% inflation (blue series data points). The red data points show a 3 cent (not 3%!) fixed increase each year. I put the "red" data in because that would be what would have been PERCEIVED by a hammer buyer looking at a price change over a year or two (at least for the early years). CLICK on any of the graphs for a better view.
The next chart is "kind of the inverse (1/e^x, which I believe is also the "exponential distribution")" of the above and may be more familiar looking. It shows the value of the dollar falling vs. the 1913 dollar. Most researchers who have prepared a similar graph to the below usually arrive at a final end point of the 2012 dollar being only worth 3 cents. In my case here (using a constant 3% inflation), the dollar has fallen in value from 1913 - 2012 to about 4 - 5 cents:
This next graph extends the first graph out to the year 2032 (twenty years from now). You may be thinking two things:
1) 20 years, that's a long time. My response, look how the last 20 years have flown by...
2) That curve doesn't look so bad. My response, please look at the vertical scale, a $34 hammer in 2032 vs. $18 now...
The next graph is an extension out to 2062. Yes, I know that it is unlikely that we will see 3% constant inflation from now until then AND that 2062 is a year for our grandchildren, but it illustrates well what happens in "the out years" (note that the $1.00 1913 hammer is now over $80):
Let's play pretend one last time (or have a "Thought Experiment" for finicky adults who do not like to play). "Let's say" that in a moment of relative panic and seriousness that our politicians in 2017 (after Obama's second term or after Romney's first term) decide to get "really serious" about our debt. I mean it, really serious! And, let's say they are SO serious that they decide limit the growth of government debt by 5% per year (as the looming debt growing at 11% is starting to look scary even for politicians...). They are SO SERIOUS that they get a Constitutional Amendment through limiting growth of the debt to 5% a year! Wow! That's pretty serious! Well, that sounds pretty good, doesn't it? And 5% is not so much, no? Just a little bit over our projected economic growth rate. Hallelujah! Hallelujah!
Well, let's see:
[/clip]
***
The below is a similar clip from my "Marginal Utility And Gold" article. In that article I discuss "marginal utility", an economic term with how much you enjoy the next purchase of something that you enjoy, "units of happiness or satisfaction" if you will.
[clip]
From Wikipedia, the free encyclopedia
Let's do one of my beloved "Thought Experiments" here to explore this graph. "Let's say" you are the head of a happy household with FIVE CHILDREN (are you reading this Amy?), and let's also say that you just won a decent amount of money from your local lottery (say $1,000,000 free and clear, in cash now, taxes already paid). Let's also assume that you are middle class, not deep in debt and have your retirement money put aside OK. So, you are free to spend the money!
You determine that your major purchases are to be to upgrade your transportation, you deserve it, so why not? So, before you head out the door, you are at the very beginning of the above graph. You decide to buy a BMW! Wow, that felt good, didn't it? You are now at that next point on the graph, shared by the blue square and the red dot. The Y-axis is your "utility", how good you feel being a BMW owner. You got a nice chunk of utility from buying the car. So, you decide to buy your wife as well! Smart move, she is likely to be very happy too. Now, take a close look at the graph to see WHAT it is charting. The red dots are your TOTAL happiness (utility) from buying the two (for now) cars. The blue squares show your marginal utility, that is how much EXTRA pleasure you got from your most recent purchase. You will note you got almost as much pleasure from buying that second car as from the first. That is still pretty good though.
You then decide that your oldest child gets to have a BMW as well, s/he's a good kid, right? So you buy BMW number three. But, to be fair, you decide to buy EACH one of your children in turn a new BMW. At this point, you are probably not getting any extra happiness from that seventh car! And THAT is where the blue square is there at zero (no extra happiness) and the red dots are as high as they are going to go. Let's say you buy yet another BMW... You will likely NOT derive any utility here, in fact, if this Thought Experiment follows this graph, you would LOSE utility (be LESS happy) because where are you going to park that eighth car...?
Most products and services are like this. If you like Big Macs, that first one is yummy! The second will likely fill you up, that is likely to be as much as you want (maximum utility). The third Big Mac would likely make you sick...
***
But, gold is different. I mentioned near the very top of this article that I responded to two new buyers of precious metals. I told them both that AT LEAST FOUR TIMES that I had reached a convenient "round number" of ounces of gold that I wanted to hold, and that would be that. I would not need anymore. But, soon thereafter, I found that, well yes, that I could buy just a little bit more gold.
In other words, at least four times I thought that I would have enough gold to keep me happy only to find I wanted more...
So, gold would NOT follow the above graph from wikipedia. My best guess is that gold would follow a path similar to the "y = ln(x)" curve. Where the Y-axis is total utility and the X-axis increasing gold ownership through time. The ln(x) curve is the INVERSE of the exponential curve (the e^x, "e to the x power"). There are two graphs below, the first one is ln(x) up to 500 oz of gold owned and showing a "utility" of about 6.1. The second graph shows ln(x) out to 5000 ounces, with a utility of about 8.2.
Three quick notes about the above two graphs. The first is that I put in "Y-axis" values below zero because that is the actual way the ln(x) curve is. Secondly, note each unit of "utility" is worth a LOT (5000 oz of gold is approximately 206 lbs of gold, troy ounces remember)! Third, take a good look at the SHAPE of the two curves, they are essentially identical! They scale exactly the same, just like the more well known exponential curve. If I am interpreting this right, marginal utility of increased gold holdings scales very nicely all the way up the curve!
[/clip]
***
I mentioned up there in the exponential growth part that the inverse of e^x is the 1/e^x, the traditional way that we non-math majors think of the inverse ("one over (the function)").
There is another way to think about y = e^x and y = ln(x) however. These two functions are the inverse of each other in another way. They are mirror images of each other about the "y = x line". See below graph:
The blue diamonds above are "y = exp(x)", the red squares are "y = ln(x)" and the green triangles are "y = x". Note that ln(x) and exp(x) do indeed mirror-image each other off of the "y = x" line. Pick a convenient value of y or x (say 15), and note that the distance from (15,15) to each curve is the same (I leave proof of this as an exercise for the reader).
The exponential function is well known for modeling many phenomena. I have to think that its inverse, the natural logarithm should model some things we see as well.
***
Here is a blog link to a guy writing on kind-of similar pieces as the above. It is worth your while to take a look:
https://pearlsforswine.wordpress.com/
Wednesday, February 1, 2012
Fun With PM Prices And Premiums (January 2012)
In this article I will present whatever looks interesting from the data set I am collecting from the eBay / 24hgold.com Widget showing whatever patterns or other information that we can get from it. This data from just January 2012 is not much, and so the below comments probably not wort that much either, but as I get more data and work with it more, I will learn stuff. And pass it along to you in future articles.
All of the raw data comes from the eBay / 24hgold.com JV widget at 24hgold.com, the widget is found at the bottom of their Home Page. You can view the data I took each time at:
tinyurl.com/7rvadcx
This first graph shows gold price from January 1 - 31. I took 39 observations (meaning I noted price of gold twice on certain days, and maybe skipped one or two days, but these are in chronological order), but it is clear enough how gold moved in January.
"Click on any image for a better view."
Notice the nice big jump in late January, the day the Fed announced ZIRP until at least late 2014.
The next chart shows the premium of American Gold Eagles vs. "Spot" gold price ("paper gold" price), note that this is in chronological order as well:
The average premium for January 2012 was 9.8%. The standard deviation was 2.9% (meaning that approximately 68% of the premiums observed were between 6.9% - 12.7% (9.8% +/- 2.9%). I would note for you that having looked at this widget for a couple of years now that the 9.8% average premium is fairly high, the more typical range I have observed is 5.5% - 8.5%. Note very high premiums around January 20 or so.
This next graph shows the premiums of Gold Eagles vs. Silver Eagles:
The blue diamonds are Gold Eagle Premiums, the red squares are Silver Eagle premiums. The average Silver Eagle Premium for January was 39% with a standard deviation of 14%. Note three things:
All of the raw data comes from the eBay / 24hgold.com JV widget at 24hgold.com, the widget is found at the bottom of their Home Page. You can view the data I took each time at:
tinyurl.com/7rvadcx
This first graph shows gold price from January 1 - 31. I took 39 observations (meaning I noted price of gold twice on certain days, and maybe skipped one or two days, but these are in chronological order), but it is clear enough how gold moved in January.
"Click on any image for a better view."
Notice the nice big jump in late January, the day the Fed announced ZIRP until at least late 2014.
The next chart shows the premium of American Gold Eagles vs. "Spot" gold price ("paper gold" price), note that this is in chronological order as well:
The average premium for January 2012 was 9.8%. The standard deviation was 2.9% (meaning that approximately 68% of the premiums observed were between 6.9% - 12.7% (9.8% +/- 2.9%). I would note for you that having looked at this widget for a couple of years now that the 9.8% average premium is fairly high, the more typical range I have observed is 5.5% - 8.5%. Note very high premiums around January 20 or so.
This next graph shows the premiums of Gold Eagles vs. Silver Eagles:
The blue diamonds are Gold Eagle Premiums, the red squares are Silver Eagle premiums. The average Silver Eagle Premium for January was 39% with a standard deviation of 14%. Note three things:
- Silver premiums are much higher than gold (we all knew that though). Why? Part of this can be explained by the sheer bulk of silver, meaning it is more expensive to move and handle.
- Relatively speaking ASE standard deviation / average and AGE standard deviation / average are roughly comparable (ASE: 0.36, AGE: 0.30). That means on a relative basis that silver premiums do not vary much more than gold premiums.
- The correlation coefficient between the AGE premiums and the ASE premiums is only 0.26, usually a 0.30 correlation coefficient is the minimum (that "Social Scientists" use) to show a significant relationship between two variables. Here, this means that AGE premiums and ASE premiums "move together" only a little bit.
Lastly, I calculated the correlation coefficient of price of gold vs. the AGE premium: -0.21. That is, as the price goes UP, the premium goes down (and ESPECIALLY vice-versa, when they take down the price of gold, the premiums get higher as sellers do not want to let their gold go "too cheaply".
As I get more up to speed on long-forgotten statistics and I gather more data, we may find more interesting relationships than what I have mentioned above.
Hey, any of you readers who are GOOD at statistics, please review my work above (and email me!), I already know that I am not using certain terms correctly... I know, I know, this is really sleazy statistics... Help me learn...
Tuesday, October 4, 2011
eBay / 24hgold Widget
I cut and pasted the below portion of the 24hgold / eBay widget:
Let's get Physical
BULLION - METAL VALUE AND PRICE
Click on coin for offers Metal value eBay prices and premium
American Gold Eagle 1 Oz eBay $ 1,616.03 $ 2,030.50 +25.6%
American Silver Eagle 1 OzeBay $ 29.38 $ 55.60 +89.2%
(Once again I apologize for bad formatting)
Please note 25% for physical gold (there at eBay) and 89% for silver!
See the widget yourselves at:
24hgold.com
Let's get Physical
BULLION - METAL VALUE AND PRICE
Click on coin for offers Metal value eBay prices and premium
American Gold Eagle 1 Oz eBay $ 1,616.03 $ 2,030.50 +25.6%
American Silver Eagle 1 OzeBay $ 29.38 $ 55.60 +89.2%
(Once again I apologize for bad formatting)
Please note 25% for physical gold (there at eBay) and 89% for silver!
See the widget yourselves at:
24hgold.com
Friday, September 30, 2011
Is The 24hgold / eBay Widget Trying To Tell Us Something?
Update, 12:03 AM, 1 Oct 2011
The widget NOW shows a 25% premium of physical to spot in gold, but a HUGE 86% in silver! Maybe it's one of those anomalies that happen over there at eBay...
---
Many of you now that I have been trying to find a way to keep track of actual physical gold prices vs. the spot gold quotations from the COMEX. There are two relatively easy ways to do this:
1) Call the coin shops or check with the gold sellers (Tulving, APMEX, Gainesville, etc.)
and
2) Monitor the 24hgold / eBay widget (found at 24hgold.com, at the bottom of the home page).
Since I check the price of gold at least once a day at 24hgold, I often take the time to check the widget, which tells us the premium of the US Gold Eagle offered at eBay vs. the spot price. The "widget" price is always higher than spot (as it should be, as the Eagle has some 3% silver and 5% copper to make the coin resist scratches, that of course is over and beyond the 1 troy oz of gold).
For sometime now I have been monitoring this, and occasion comment on it both here and at Zero Hedge when I see something interesting. Well, I think that the widget HAS been interesting since the Big Plunge in gold prices starting about 10 days ago.
I just checked the widget, the eBay price is an impressive 25% over spot, the highest I have ever seen! The Silver Eagle eBay premium is a very high 42% as well. During the past several days, I have seen the widget showing at least 11% over spot (and up to 20%), which is higher than the normal 5% - 9% which is the great majority of premiums I have seen in the past.
FOFOA teaches us that the "paper price" (COMEX) of gold may very well go down (as physical buyers cannot get the physical so the paper becomes worth less -- oversimplifying) yet the actual, real price of physical goes up.
I am NOT announcing that FOFOA's ideas are about to happen, but the widget, imperfect as it is (and several people have let me know that eBay is a playground for thieves too, although others have told me they buy & sell there regularly with few / no problems) MAY show an increasing scarcity of physical gold for retail buyers (we "shrimps") like us.
I saw NO evident shortage when I bought recently, although the two coin shops I buy from typically have NO 2011 or even 2010 Gold Eagles (my preferred gold investment).
What say you? Reader "Jonny Bahrain" a few days ago told us that there were shortages of retail bullion product there in Manama, Bahrain. Please comment or let me know if YOU see any shortages or have similar observations. If I hear something, I will say something! (thanks Madame Secretary Napolitano!).
The widget NOW shows a 25% premium of physical to spot in gold, but a HUGE 86% in silver! Maybe it's one of those anomalies that happen over there at eBay...
---
Many of you now that I have been trying to find a way to keep track of actual physical gold prices vs. the spot gold quotations from the COMEX. There are two relatively easy ways to do this:
1) Call the coin shops or check with the gold sellers (Tulving, APMEX, Gainesville, etc.)
and
2) Monitor the 24hgold / eBay widget (found at 24hgold.com, at the bottom of the home page).
Since I check the price of gold at least once a day at 24hgold, I often take the time to check the widget, which tells us the premium of the US Gold Eagle offered at eBay vs. the spot price. The "widget" price is always higher than spot (as it should be, as the Eagle has some 3% silver and 5% copper to make the coin resist scratches, that of course is over and beyond the 1 troy oz of gold).
For sometime now I have been monitoring this, and occasion comment on it both here and at Zero Hedge when I see something interesting. Well, I think that the widget HAS been interesting since the Big Plunge in gold prices starting about 10 days ago.
I just checked the widget, the eBay price is an impressive 25% over spot, the highest I have ever seen! The Silver Eagle eBay premium is a very high 42% as well. During the past several days, I have seen the widget showing at least 11% over spot (and up to 20%), which is higher than the normal 5% - 9% which is the great majority of premiums I have seen in the past.
FOFOA teaches us that the "paper price" (COMEX) of gold may very well go down (as physical buyers cannot get the physical so the paper becomes worth less -- oversimplifying) yet the actual, real price of physical goes up.
I am NOT announcing that FOFOA's ideas are about to happen, but the widget, imperfect as it is (and several people have let me know that eBay is a playground for thieves too, although others have told me they buy & sell there regularly with few / no problems) MAY show an increasing scarcity of physical gold for retail buyers (we "shrimps") like us.
I saw NO evident shortage when I bought recently, although the two coin shops I buy from typically have NO 2011 or even 2010 Gold Eagles (my preferred gold investment).
What say you? Reader "Jonny Bahrain" a few days ago told us that there were shortages of retail bullion product there in Manama, Bahrain. Please comment or let me know if YOU see any shortages or have similar observations. If I hear something, I will say something! (thanks Madame Secretary Napolitano!).
Sunday, September 25, 2011
24hgold.com / eBay Widget
shows a 20% premium over spot for American Gold Eagles! That is the highest I have ever seen it. eBay price is some $1979 vs. gold spot at $1644 (9:36 PM ET).
24hgold.com
24hgold.com
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