Mathematics And Markets - Outlook For Gold Per August 2nd, 2018

|
Includes: BAR, DGL, DGLD, DGP, DGZ, DZZ, GEUR, GHE, GHS, GLD, GLDI, GLDM, GLDW, GLL, GTU, GYEN, IAU, IAUF, OUNZ, PHYS, QGLDX, SGOL, UBG, UGL, UGLD
by: Laomedeia Ltd
Summary

Dominant directional price movement is upward for long-term layers and Risk/Reward is favorable.

Laomedeia observes significant remaining upward potential for long-term layers (favorable).

Dominant directional price movement for medium- and short-term layers is downward.

Risk/Reward for the medium and short term is unfavorable and potential gain is minimal.

Abstract

Research based on dynamic chaos theory, mathematics exploits consistently recurring characteristics of complex polynomials to calculate time-dependent price levels on multiple distinct layers. This article describes what information results from dynamic chaos theory mathematics and details investment decisions with respect to gold per August 2nd, 2018.

References

"Applying Mathematics to Analyse Financial Markets – Part 1, Innovation" describes the development of a new market analysis method which is based on dynamic chaos theory mathematics. The innovative element relates to the exploitation of consistently recurring characteristics of complex polynomials on multiple distinct layers. Consistently recurring characteristics on multiple layers apparently bring order in a seemingly chaotic financial market environment.

"Applying Dynamic Chaos Theory to Analyse Financial Markets – Part 2, Good Investment Practice" elaborates on how to make good investment decisions. This article describes how research resulting from dynamic chaos theory can help investors in making objective investment decisions and provides input to implement Good Investment Practices.

Outlook for Gold – per August 2nd, 2018

Laomedeia research evaluates the dominant directional price movement of all distinct layers prior to any investment decision being taken. Conflicting dominant directional price movements amongst distinct layers negatively influences potential yield. The below table provides the actual status for the dominant directional price movement per layer for gold. Price targets and price edges are sorted relative to the actual value of gold at the time this article was written.

Table1-Gold_180802

Table 1 - Dominant directional price movement per distinct layer for gold (status as of August 2nd, 2018).

Table 1 provides insight into all current price targets and price edges for gold per August 2nd (keep in mind, price information is time-dependent). Laomedeia assigned a unique number (counter #) to each price target and each price edge in order to keep track of an audit trail. This makes our research verifiable over time and introduces transparency.

Short-term (layers 8, 7 and 6) and medium-term polynomials (layers 6, 5, 4 and 3) show a downward dominant directional price movement. For long-term polynomials (layers 2 and 1), we observe an upward directional price movement. This translates into short- and medium-term weakness in a longer-term upward trend.

Additional objective decision criteria

As described in Part 2, Good Investment Practice, we should look at additional objective decision criteria before making any investment decision. One of these criteria relates to the remaining potential within a trading range for a distinct layer, which provides insight into whether it makes sense to continue further investigation for potential investment. Graph 1 provides an overview of progress within the trading range per distinct layer for gold per August 2nd, 2018.

Graph1-Gold_180802

Graph 1 - Remaining potential within a trading range per layer for gold (status as of August 2nd, 2018).

The remaining potential within each of the trading ranges looks sufficient, which is very positive for all distinct layers. Most of the polynomials show significant remaining potential within their trading range because progress is just at 60% or less for all distinct layers. This means there is sufficient remaining potential in each layer. Remaining potential, however, may be directed downwards or upwards. As we can observe from Table 1, only layers 1 and 2 have an upward dominant directional price movement, while all other layers have a dominant downward directional price movement.

Overall, we can conclude that the long-term dominant directional price movement for gold is upward with significant remaining potential, while short- and medium-term dominant directional price movement is downward, resulting in short- and medium-term weakness.

Potential Gain versus potential Loss

When looking at the trading range per distinct layer, we can compare normalized potential gain with potential loss. Potential gain has been defined as the difference between price target and actual value, and potential loss reflects the difference between actual value and price edge. Normalized potential gain and normalized potential loss per layer are visualized in the below graph and should be interpreted relative to the dominant directional price movement for each layer:

When dominant direction for a layer is up, potential gain (profit) is on the positive axis. When dominant direction for a layer is down, potential gain (profit) is on the negative axis.

Graph2-Gold_180802

Graph 2 - Normalized potential loss and potential gain for gold per August 2nd, 2018.

A deeper dive into the comparison between potential gain and potential loss per layer helps to understand that short-term potential gain for gold is very limited (layers 8, 7 and 6) and medium-term potential loss could be considerable (layers 4 and 3). Another conclusion from graph 2 is the significant potential gain for gold in layers 1 and 2.

Graph 2 basically shows longer-term significant potential gain for gold (Layers 1 and 2) but potential medium-term and short-term weakness. We should, however, review the Risk/Reward ratio per distinct layer prior to jumping to conclusions (ref. Part 2, Good Investment Practice).

Risk versus Reward

The Risk/Reward ratio per layer is represented in graph 3. Long-term layers 1 and 2 show a risk/reward ratio below our threshold of 0.5 (favorable), while we observe a mixed picture for medium- and short-term layers. This means we will not initiate a position in gold at this moment because we only see favorable risk/reward ratios for long-term layers, while we also observe short- and medium-term weakness.

Graph3-Gold_180802

Graph 3 - Risk/Reward ratio per distinct layer for gold per August 2nd, 2018.

As in earlier publications, we would like to emphasize the nature of dynamic chaos theory mathematics, causing a time dependency on all ingredients being used for analysis. In order to correctly deal with this time dependency, Laomedeia re-calculates price targets and price edges on a daily basis.

Short- and medium-term Price targets for Gold - per August 2nd, 2018

In Part 2, Good Investment Practice, we elaborated on time dependency of price and on what decision criteria may be of help to reduce risk. If we apply our objective decision criteria, we should conclude that it is not the right moment to take a (long) position in gold. Polynomials representing short- and medium-term layers indicate further downward potential is likely, and we observe significant potential risk in medium-term layers 4 and 3.

Laomedeia research indicates short- and medium-term weakness for gold with price targets as deep as USD 1,171 (layer 4) and price edges as deep as USD 1,134, but we also see longer-term upward potential towards USD 1,548 (layer 1 and 2).

Conclusions for Gold per August 2nd, 2018

Consistently recurring events are key ingredients of the mathematics behind chaos theory. The beauty of this action taking place simultaneously on multiple distinct layers is mind-blowing. As a reader of research resulting from dynamic chaos theory mathematics, your mindset has to allow for an innovative concept regarding analyzing price action in financial markets. This concept is based on key characteristics of complex polynomials, not on generally accepted economic or supply and demand criteria.

Please be aware that analysis by means of dynamic chaos theory mathematics requires a different mindset. Although it may seem tempting to provide a qualitative background supporting the below conclusions, Laomedeia aims to avoid adding potentially subjective information.

Applying objective decision criteria like dominant directional price movement, remaining potential in the trading range per layer, potential gain and loss and Risk/Reward per layer lead to the following mathematical facts and conclusions:

  • Potential within the trading range is significant for all distinct layers (favorable situation).
  • Dominant directional price movement is down for the short and medium terms while up for the long term.
  • Risk/Reward ratios for short term and medium term do not support a long position in gold.
  • Potential gain for the short term and medium term does not support a long position in gold.
  • Long-term potential gain is significant, but short-term and medium-term weakness has to play out prior to entering a long position in gold.

Thank you for reading, and feel free to reach out in case you have any questions, inquiries, need further clarification or would like to provide suggestions or feedback.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.