Refining the Gold Model

In this morning’s news roundup, I linked to an interesting post by Willem Weytjens who took my gold model and refined it with updated inputs. I’m happy to see this and I strongly encourage any stat geeks out there to run with this.

My goal for my model was to establish a model for a model of the price of gold. My original description has the price of gold rising eight-fold, in the opposite direction, for each percentage point real rates are from 2%.

As I said in my original post, “if the real rates are at 1%, gold will move up at an 8% annualized rate. If real rates are at 0%, then gold will move up at a 16% rate (that’s been about the story for the past decade). Conversely, if the real rate jumps to 3%, then gold will drop at an 8% rate.”

Weytjens found a better fit using a deflator of 2.15% and 2.2%, and a leverage ratio of 5.7 and 6.95. Check out his charts; the fit looks really good. He found that the model forecasts a gold price of $4,380 in two years.

Posted by on December 12th, 2011 at 12:09 pm


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