The gold exponential

 

Just like everything else, Gold prices are also exponential in nature and hence prone to a potential exhaustion.
There is a page dedicated to the Euler’s number in the Math book by Dr. Clifford Pickover. The Euler’s number is possibly the most important number is mathematics. Although pi is more familiar to the lay person, e is far more significant and ubiquitous. The irrational number e is approximately equal to 2.71828. Although mathematicians like Jacob Bernoulli, Gottfried Leibniz were aware of the constant, Swiss mathematician Leonhard Euler was among the first to extensively study the number. e is used in diverse areas, such as in the formula for the catenary shape of a hanging rope supported at its two ends, in the calculation of compound interest and in numerous applications in probability and statistics.
Why is it so relevant for investors? Probability and statistics are the building blocks of modern finance, but more than that it is the exponential function that is at the heart of markets. Exponential functions have no memory. This means that it is not necessary to consider past occurrences of an event in order to calculate probabilities of future occurrences. Exponential growth (including exponential decay) occurs when the growth rate of an entity (function) is proportional to the function’s current value.
Nature is replete with examples of exponential growth. The number of microorganisms in a culture broth will grow exponentially until an essential nutrient is exhausted. Typically the first organism splits into two daughter organisms, who then each split to form four, who split to form eight, and so on. Many responses of living beings to stimuli, including human perception, are logarithmic responses, which are the inverse of exponential responses; the loudness and frequency of sound are perceived logarithmically, even with very faint stimulus, within the limits of perception.
The Malthusian growth model sometimes called the simple exponential growth model, is essentially exponential growth based on a constant rate of compound interest. The model is named after the Reverend Thomas Malthus, who authored An Essay on the Principle of Population, one of the earliest and most influential books on population. Even in physics, the Nuclear chain reaction (the concept behind nuclear weapons). In economics, the infamous Pyramid schemes or Ponzi schemes also show this type of growth.
Exponentiality is associated with herding, not with value. Exponentiality can be defined as rising inclination in prices, larger gains in smaller time which visually looks like a rocket headed into sky or a bottom less pit. A look at Gold prices suggests this positive exponentiality.
Look at platinum in (1999-2008), look at zinc (2003-2006), look at Dow (1974 – 2007). Just to make the case clearer we have juxtaposed Dow (1974-2007) with gold (1999-2010), they look similar. Now this is not the classic Intermarket chart we see every day, as gold is considered an asset of bad times while Dow is for good times. Gold is also known as the crisis commodity that prospers in tough times. So the important questions one can ask is are we in an ongoing crisis as rising gold prices suggest? Or are we looking at an ending crisis as exponentiality and topping of gold suggests?
If we look at the element of time gold has been rising for a record 10 years without a retracement more than 38.2%. The metal has not witnessed a fall bigger than 9 months in time. While the Dow price exponential structure (1974-2007) topped in Oct 2007 and crashed 50%. Building on the case, we have more of a topping case for gold here and an easing crisis rather than what seems to be out there.
Out there we have a sovereign risk, euro under attack, more than 12-month-old recovery and if we look at the sentiment indicator, all time historical highs on gold will generate bullish sentiment extremes. This means more of an exhausting, up but topping case than otherwise. To understand gold further we also plotted the precious metals against Euro and Japanese Yen. The aim was to take out the dollar bias. Gold denominated in Euro and Yen both were at weekly momentum extremes. Gold in Yen was still below 1980’s high and Gold denominated in Euro was gapping in the Reuters 3000Xtra charts. Considering EURUSD has also gapped recently on daily data, we are not surprised that price gaps on the gold euro are conspicuous.
A closer look at industrial metals also suggests down structures. How can industrial metals correct while gold and silver push higher? Is this not a nonconfirmation? Even now things don’t add up if you are expecting a primary (more than 9 months) degree crisis. Things add up if we assume intermediate negativity on equity markets not heading into Q4 followed by a global recovery. We will have to wait and see how the respective exponential function in gold unfolds.