Common sense is not common because like everything in Nature, human thinking is clustered. We don’t question what we are taught at school. This is why ML is Cargo cult, amplifying the replication crisis in Science.
ML does not work with limited data. What do you do, when you have limited data? Probability precedes ML and is a lot more capable to understand context when there is a limited data.
172 years of Gold annual data is a powerful time series to anticipate where the economic cycle is headed. Even if it may seem that Gold has reached a constant state of stagnancy, history suggests otherwise. The two nominal states to persist in the current positive trend and reversion can be anticipated by machines, if they could be taught to overcome their data constraint and think more foundational, and have courage to ask elementary questions.
Let’s indulge in a bit of subjective discourse. What if Gold was headed more than 50% lower (higher) over the next 12-18 months? Would that mean a vote of confidence (panic) regarding the ongoing “positive” economic cycle? Or would that mean that inflation (deflation) fears were misplaced? What could happen first, deflation (> 50% fall) or inflation (>50% fall)?
All these seemingly theoretical questions is why we need intelligence in the first place, an intelligence that can work despite data constraints, an intelligence that can estimate probabilities (p) of deflation before inflation or vice versa (q=1-p) and for this elementary steps we don’t need ML, we need an Informational state, which can estimate probabilities be it a factor, a direction, or a system.
Before we build the Alphabots estimating future states of Gold, let’s look at some history.
First Published on 24 August, 2008
The 34 year gold cycle guides liquidity flow from equity to gd, as money shifts from paper to hard assets.
Peter Cogan mentioned about the Gold crisis cycle of 34 years in his article on predetermined periodic cycles of optimism and pessimism. The 1967-68 Gold crises, which climaxed with the end of Bretton Woods system followed the 1933-34 Gold crisis. The article written in 1969 issue of Cycles was visionary and is the only reference in nearly 70 years of Cycles literature. But the more interesting part is that the Cycle is still valid and working. After the gold crisis of 1967-68 we saw the crisis of 2000, where people believed in technology stocks and the paper dreams they offered compared to the hard asset.
Crisis, as the Chinese put it, is danger with opportunity. The 2000 Gold crisis created more than a decade long opportunity. And the 34 year cycle projects the next crisis near 2030. What does this mean? This means that there is more upside on Gold to come on one side and second a majority as usual will get trapped buying Gold near 2012-2015 highs. This is how long term cycles work.
They originate from the time necessary in order that one generation has time to forget the faults of a previous one. And even if neural prosthesis embeds a memory chip in our brain, one really needs to be a good student of econohistory to understand that cycles exist not just in gold, but in interest rates, inflations, inventories, sectors, stocks and above than they are all linked.
Gold is a commodity leader more important than oil, as oil cannot replace money but gold can. Jack Sauers, Gold cyclist wrote about Gold linkage with market sectors and inflation in 1977. From the investor point of view, gold and gold stocks are looked at as being counter cyclical. That is why when the stock market peaks out and reverses trend, there is usually a rush to buy gold and gold stocks with investor funds obtained when industrial stocks are sold off as Dow Jones drops. There is thus a strong tendency to drive gold prices and gold stocks even higher. After the low of business cycles is reached and recovery starts again, gold and gold stocks are sold off and funds reinvested. Jack also explained why gold sometimes ignore the inflation trend of other commodities on the rising portion of business cycle. As far as the average business cycle of 41 months is concerned, copper and silver rise as the cycle increases due to industrial demand and gold decreases. Only when inflation rate is terribly high, or too apparent to the average consumer, do all metals rise simultaneously as investors lose confidence in paper money.
Updated Dec 2020