Thursday, August 11, 2011

How Fast Can The US Dollar Collapse?

Recent volatile and relentless surging gold price suggests that we are getting closer to the catastrophic collapse of the US dollar and other likewise fiat currencies of the world.

Remember, no matter how high gold price goes up, it is not the value of gold that's going up, it is the value of the dollar that's going down. Gold is just a commodity that happen to be commonly used as money. Gold does not pay interest or generate income. Gold has no investment value but has storage value. No matter how high gold price goes up, you are not going to be able to buy more stuff with gold, but you merely avoided the loss of value holding ever depreciating dollar.

How fast can the US dollar collapse is the same question as asking how fast can the gold price go up, in dollar terms. Let me try to come up with a model.

The gold price can be written in the following generic formula, which is always correct as long as you choose the proper time dependent function Y(T):

P = P0 * exp(Y(T))

The price of gold should increase or decrease in exponential terms. No matter where the price is, the change is alway in percentages, i.e., the change is reflected in the exponent Y(T). As time elapses, Y(T) increases over time, giving an ever increasing exponent and ever increasing gold price. So let's look at what Y(T) should look like.

In the constant inflation scenary, gold price should increase the same percentage each year, therefore Y(T) would simply be proportional to the time, t, Y(T) = C*T.

But we are not talking about constant inflation. The scenary looks like at first, there is almost no inflation. And then as inflation slowly kicks in, the problem becomes more and more serious, and they print more and more money to spend. Therefore, the higher the inflation pace, the more money they print, and the more money they print, the higher the inflation will go up. It all starts with almost no inflation, and ends with inflation approaching infinity.

In mathematics we can write such correlation simply as that the derivative of Y(T) is directly proportion to Y(T) itself:

dY(T)/dt = C * Y(T)

If you are familiar with math you immediately recognize what it is. It is the exponential function:

Y(T) = EXP(C*(T-T0))

Thus we obtain an elegant math formula of gold price, once you plug in the Y(T):

P = P0 * exp(exp(C*(T-T0)))

Let's pick the two constants. The current gold bull market starts in the beginning of year 2000. Let's use year for the variable T. T0 = 2000. For example today, August 11, 2011 is the 223th day of the year. So for today, T = 2011 + (223/365) = 2011.611

Let's use $200 as starting gold price at the beginning of 2000. That would require that

P = P0 * exp(exp(0)) = $200

Therefore P0 = $200/exp(1) = $73.5

I find that using the constant C = 0.1 gives a perfect gold price match for the past 10 years:

P = $73.50 * exp(exp(0.1*(T-2000)))

For today, T = 2011.611, the formula will give $1791. That's right where we are right now today on the gold price!

Hold your breath. And now, the following chart shows how good this elegant formula matches up with the past eleven years of gold price, and what the future trend will be!

Folks, you still have some time, but clearly time is quickly running out before hyperinflation kicks in in full power. Buy physical precious metals now: Gold, silver, platinum and my favorite, palladium! Buy precious metal and commodity mining stocks: SWC, PAL, PCX, SSRI, CDE, JRCC, PAAS. These are the only things that can protect you in the coming years!


Cash Money For Gold said...

What is your future price prediction for platinum, and palladium, gold. 1-10 yr outlook a graph would be great using your gold formula.

Can You simplify your gold formula?
what is po,exp y/t


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The dollar could enter a free fall at anytime. The country cannot afford a shock like that.

hou said...

What is your future price prediction for platinum, and palladium, gold. 1-10 yr outlook a graph would be great using your gold formula.
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