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Mark Anthony, is an IT professional and who had a scientific research background before joining the information revolution. Visit his blog: Stockology (http://stockology.blogspot.com/)
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  • How Fast Can The US Dollar Collapse 1 comment
    Aug 11, 2011 4:23 PM | about stocks: SWC, PAL, PCXCQ, SSRI, CDE, PAASQ, GLD, SLV, PALL, PPLT, ZSL

    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.

    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 a commodity that happen to be commonly used as money. It does not pay interest or generate income. It 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.

    All fiat currency ultimately collapses because government always tend to want to do more things and need to spend more money. Borrowing can not be indefinitely sustainable. Taxation drives away the capital money and you end up collecting less tax revenue, so eventually all government resort to money printing, which leads to the ultimate collapse of the currency.

    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 generally correct, as prices change in percentage, i.e. geometric term. You just need to choose the proper time dependent function Y(T):

    P = P0 * exp(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 the inflation is not constant. At first, there is almost no inflation. And then inflation increases over time. The inflation rate also increases in percentage term. Thus we should write:

    P = P0 * exp(exp(Y(T))),
    with an increasing Y(T) reflect increasing inflation rate.

    Finally, the acceleration of inflation itself is not a constant. The faster the inflation accelerates, the faster they need to print money and it speed up the acceleration of inflation further. Thus we can expect that acceleratio of inflation is:

    Y(t) = exp(a*(T-T0))

    Put everything together, we obtain an elegant math formula of gold price under inflation:

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

    I find that using the constant C = 3/80 = 0.0375 gives a perfect gold price match for the past 11 years:

    P = $15.00 * exp(exp(exp(0.0375*(T-2000))))

    Hold your breath! And now, the chart below 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, among other things. These are the only things that can protect you in the coming years!

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  • Chickenpookie
    , contributor
    Comments (145) | Send Message
     
    Bravo! Quite correct, Mark!
    13 Aug 2011, 12:27 AM Reply Like
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