After posting The Course of Inflation, a reader asked me to expand on the projections and risk analysis - gladly. The risk optometry appears below. Note that simulated generalized brownian motion was used to extend the forecast past 2009 through 2025. The trendline that travels through the historical data is based on the power function depicted. Finally, take careful note that the 1% and 99% projections do not bind the potential outcomes as the chance and risk of higher and lower prices still exists, albeit unlikely. Of course, I made the assumption that gold prices since 1968 proxy the real inflation rate, which some economists might question.
The main point of the forecast and previous article was to show that the most likely path of gold prices (and therefore inflation) is not likely to extend beyond risk free rates based on the historical data since 1968. Gold fundamentals were not considered in the projections (other than historical prices), so do the additional analytical work before investing in gold...
The Course of Inflation
The Course of Inflation III
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