Log-Periodic Oscillation Analysis and Possible Burst of the "Gold Bubble" in April - June 2011

TL;DR

This paper applies Sornette's methodology to analyze gold price dynamics, suggesting a high likelihood of a bubble burst in April-June 2011, supported by multiple analytical approaches and historical comparisons.

Contribution

It introduces a multi-method approach to forecast the timing of the gold bubble burst, extending previous socioeconomic trend analyses to financial markets.

Findings

Gold bubble likely to burst in May or June 2011

Analysis consistent with previous oil bubble crash forecasts

Forecast sensitive to major policy interventions

Abstract

This working paper analyzes the gold price dynamics on the basis of methodology developed by Didier Sornette. Our calculations indicate that this dynamics is close to the one of the "bubbles" studied by Sornette and that the most probable timing of the "burst of the gold bubble" is April - June 2011. The obtained result has been additionally checked with two different methods. First of all, we have compared the pattern of changes of the forecasted timing of the gold bubble crash with the retrospective changes of forecasts of the oil bubble crash (that took place in July 2008). This comparison indicates that the period when the timing of the crash tended to change is close to the end, and the burst of the gold bubble is the most probable in May or June 2011. Secondly, we used the estimates of critical time for the hyperbolic trend (that has been shown in our previous publications to be typical for many socioeconomic processes). Our calculations with this method also indicate May - June 2011 as the most probable time of the burst of the gold bubble. Naturally, this forecast should not be regarded as an exact prediction as this implies the stability of the finance policies of the USA, European Union, and China, whereas a significant intervention of giant players (like the Federal Reserve System, or the Central Bank of China) could affect the course of the exchange game in a rather significant way. We also analyze possible consequences of the burst of the "gold bubble".