Gold's Parabola Equation

We all hear the talk these days about gold going 'parabolic' and that gold's secular bull market is itself making a large scale parabola. I decided to do a little investigating this weekend to see if I could prove or disprove some of these notions mathematically.

After blowing the dust off the cover of my high school algebra book, I found the equation for a parabola which is:  y = ax(squared) + bx + c. 

Then it all came back to me what a hassle these kind of problems are to solve. 

The x and  y variables are not so troublesome to figure out. X is the time across the bottom of the chart and y is the price of gold as it rises vertically.

But additionally solving for three variables (a, b, and c) will involve simultaneous equations. Yick! That can get really messy.

It took me a while but I finally solved the problem, then made this chart to show you. 

I decided to set the first day of the secular bull market on April 1, 2001 as that was the day gold achieved its low of $256. Each year after this day is expressed in increments of 10 (i.e. 50 would be 5 years after April 1, 2001 OR April 1, 2006).

This is a daily chart of gold. The red line running along with price is the 200 dma. The blue line is defined by the parabola's equation.

The equation I came up with seems a pretty good fit considering it covers over 10 years of gold's daily price movement. There are a few tweaks I could do to the equation to have it match price movement a little more closely at specific points in time, but overall I think it shows me what I wanted to figure out. 

And indeed, I think we can conclude that gold's secular bull market is making a long term parabola. 

I found it interesting to visually compare the 200 dma (red) with the parabola equation (blue). They are quite similar.

Also, it appears our current high of $1881 has strayed noticeably higher from either the parabola or 200 dma than at any time in the past 10 years. But that is a visual perception error. Price, as measured by a percentage comparison, is no higher today from these bench marks than in 2008 and in fact, price would need to barely surpass $2,000 to equal 2006. And who knows - as this is the largest C-wave to date, it may break every record on the chart.


By John Townsend on August 21, 2011 |