Gold ores price in May, June, and July 2009

In this blog, we have published a paper on the prediction of gold ores price between 2009 and 2016. This is a long-term view on the processes behind the price. This view could fit the needs of strategic investors, who are interested to know what will happen in five-ten years from now.
Figure 1 reminds principle features of the price evolution. The difference between the overall PPI (all commodities) and the price index for gold ores has two distinct periods with quasi-linear behavior: 1988-2000 and 2001-2008. Since 2008, the price (together with other commodities) has been suffering a transition to a new trend, shown by green line. This trend has a positive slope and thus the price for gold ores will be growing at a lower rate than the overall PPI. In absolute terms, the price will be declining between 2010 and 2016 with the total fall of 35% relative to 2008. So, the investment in gold is not going to be too much profitable over the next five years. After 2016, the new trend is likely to be replaced by the newest one with a negative slope and gold ores price will start to regain its positions relative to the PPI and in absolute terms.

For the majority of investors with smaller assets there are practical reasons to know what will happen to gold ores price in a month or two. Basically, our paper has answered this question by revealing long-term sustainable trends in the differences between the overall PPI (for all commodities) and its components, like gold ores. This post just focuses our attention on the most recent movements in gold ores price and predicts its next movement in May, June, and July 2009.

Figure 2 displays the difference between the PPI and the price index for gold ores between 2005 and 2010. The last reading available before today's (June 16) announcement is for April 2009. This reading follows our main finding that all deviations from the sustainable trend must return to the trend with a dynamics overshoot. In other words, every deviation must be compensated by the following deviation with an opposite sign. During the past three months (February, March, and April) the difference was characterized by a negative deviation, i.e. the actual curve was below the trend shown by solid red line. The reading for April demonstrates that the difference started returning to the trend. Hence, the reading for May 2009 should follow up this move and then difference should fall close to the trend, if not above it. This move in the difference is equivalent to a relative (and likely absolute) decrease in gold ores price in May. (However, we have to notice that there were longer periods of one-sided deviations, like in 2005.) This short-term behavior will stretch in June, July, and likely August. We will follow up relevant news and will update this post later on.

Apparently, this high-amplitude short-term fluctuations (volatility) will be observed during the transition period to the new trend. When the transition finished, the volatility will decrease significantly. Do not miss the moment.

Figure 1. Evolution of the difference between the PPI and the price index for gold ores between 1985 and 2009. Red and blue lines highlight segments between 1988 and 2001, and from 2001 to 2008, respectively. Green line predicts the evolution of the difference after 2008, as a mirror reflection of the linear trend between 2001 and 2008.

Figure 2. Same as in Figure 1 for the period between 2005 and 2010. Red circle presents the reading for April 2009.