Gold price in USD with 2 year exponential extrapolation
have been constructed.
Technical explanation and possible interpretation
Assuming that there is a bull market for gold that started in 2001, we could assume that the gold price (like money accounts or inflationary prices) generally grows exponentially. It would then make sense to compare the actual gold price with certain benchmark money accounts with different growth rates (i.e. interest rates).
The jagged black line is the price of gold (in the respective currency) from 01/01/1999 up until the last update of the database (08/02/2007). The black vertical line shortly after day 500 marks the day with the smallest gold price after 2001. This could be seen as the beginning of the rise of the gold price during the last few years (start of the bull market).
All curved lines are exponential functions and could be seen as the acummulation over time of a money account with a fixed rate of interest. The top green line is the money account with the lowest rate of interest that would just touch the gold price line from above (after the start of the bull market). The bottom red line respectively stands for the highest rate of interest touching from below. These two money accounts can be traced back to a point in time where they contained the same amount. This time and this amount of capital is marked by the blue line to the left (USD-value around 203.51). We could interpret this point as the underlying 'hidden' starting point of the bull market. We can now consider other accounts (with different interest rates) with the same start capital at the same time. For instance, the blue curve is the one for which 50% of all gold prices lie above, and 50% below (after the start of the bull market). We could consider this line as the median-account. The dark green (dark red) line is the account where only in 5% of all cases the gold price reached values above (below). The lines could be interpreted as the 5%(95%)-confidence-level accounts, or as the 5%(95%)-Value-at-Risk lines.
The two blue vertical lines to the right mark the points one, respectively two years in the future. For instance, the numbers left of the first line are the values of our benchmark accounts one year (250 work days) from the last date in the database. Assuming that the behaviour of the gold price stays consistent with these lines, we would expect that also in the future e.g. 50% of the prices are above the blue line, 5% above the dark green line, and none above the green line. Similarly, we had explanations for the red lines. Under the assumptions made, the curved lines can be used as a means of prediction of the gold price. For instance, we could say that we do not expect the gold price to reach over USD 1001.37 in the next 250 work days. However, over longer time periods, it would be very likely that the green, respectively red line are touched again.
Note that this prediction model might be completely inappropriate after the climax of the assumed bull market had been reached (it might be inappropriate from the start anyway). This, of course, could happen anytime by unforeseen major political, economical or social circumstances.
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