W.11_Lilly Wasitova_Gold Price vs. Exchange Rate


Problem Statement

 

To follow up on my blog # 8 regarding the study of Gold Price as Stable Reference Value, it is interesting to make further study on how this value correlates with the dynamic Exchange Rate of some currencies of interests in the same selected period of time.

 

The result from previous blog will be used here as reference, including the previously selected trend line. However, this study will be limited to the graph of the 1st Semester of 2011 using the data from [4], as below:

 


Figure 1 : Gold Price in the 1st Semester of 2011 [4], with trend-line

 

 

Alternative Solutions

 

As comparison in the same time period, below are the currency exchanges of Indonesian Rupiah [IDR], European Euro [EUR] and Chinese Yuan Renminbi [CNY] to the American Dollar [USD] from [3]:

 



 

Figure 2a-c : The Exchange Rates of IDR, EUR and CNY to USD in the 1st Semester of 2011 [3] with trend-lines

 

 

 

 

Selection Criteria

 

The selection criteria will be the same for all approaches, namely:

  • Data period from January 1st to June 15th 2011
  • The 3rd Order Polynomial Trend Line and R2 coefficient
  • The use of Statistical Process Control

 

 

Analysis and Comparison of Alternatives

 

To compare the input data and graphs, the R2 coefficient comparison for the exchange rates of IDR/USD and CNY/USD are very acceptable and the exchange rate of EUR/USD is still not as good as the other two but still acceptable, whereas the USD/Oz Gold is only passable due to very huge fluctuation, as shown in the below table:

 


Table 1 : R2 coefficient Result

 

To be noted here is the R2 coefficient
for the USD/Oz. Gold already changed to worse from previous blog, since the data used is limited from January 1st to June 15th, 2011.

 

All Exchange rates show declining graph with a trend to get better in the near future, where at the other hand the Gold Price USD /OZ. is showing a fluctuating increase with a trend to decline in the near future.

 

Using the Gold price in Figure 1 converted to each currency in Figure 2 gives us the following table and graphs:

 


Table 2 : Gold Price in Different Currencies and Their Statistical Parameters

 

 

 

 

 


Figure 3 : Control Chart for Gold Price USD/Oz.

 

 



 


Figure 4a-c : Control Charts for Gold Price IDR/Oz., EUR/Oz. and CNY/Oz.

 

 

Selection of the preferred alternatives

 

Converting the Price of Gold to the selected exchange rates and plotting their 3rd Grade Polynomial Trend Lines gives us the R2 coefficient as per Table 3 and it is showing that the values are not acceptable even for the CNY/Oz. Gold is not coming closer to the reference value of USD/Oz. Gold.


Table 3 : R2 coefficient Result for Price of Gold of Different Currencies

Comparing the trends for Gold Values in 4 different currencies, only 2 currencies are showing the same trend as the reference of USD/Oz. Gold yet not in the same gradient. Very surprising is to see the exponential increasing trend for the EUR / Oz. Gold (with also the worse R2 coefficient).

 

 

Performance Monitoring & Post Evaluation of Results

From the above calculation and above analysis, we can say that:

  1. To make the common approach of the 3rd Order Polynomial Tend Line to all set of selected data may not be the right approach, since the results vary too much.
  2. Using [2] to analyze the control charts giving the result that statistically all processes described in the graphs are pretty much under control. However if further investigation is made, the question of “Did the samples come from different parts of the process” will be answered by “Yes” and this may cause the different trends for the gold price with different currencies.
  3. The currently increasing gold price is still not to be taken as reference, if it comes to multi currencies trade, since the different government policies to control their economy will supersede the gold market situation.

 

 

References:

  1. Sullivan, William G., Wicks, Elin M. & Koelling, C. Patrick (1942), Engineering Economy 15th Edition, Singapore: Prentice Hall, Inc.
  2. Michael Bassard & Diane Riter (2010), The Memory Jogger 2nd Edition, Canada, GOAL/QPC
  3. XE, The World’s Favorite Currency Site http://www.xe.com/ucc/
  4. KITCO http://www.kitco.com/scripts/hist_charts/yearly_graphs.plx
  5. John K. Hollmann, PE CCE (2006), Total Cost Management Framework, A Process for Applying the Skills and Knowledge of Cost Engineering 1st Edition, USA, AACE International – The Association for the Advancement of Cost Engineering
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About Lilly Wasitova

Goal oriented professional who like to have fun
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6 Responses to W.11_Lilly Wasitova_Gold Price vs. Exchange Rate

  1. DrPDG says:

    WOW!!!! Absolutely AWESOME, Bu Lilly!!! I love it!!

    Met up with David, Pak Yoyok P and Pak Toto from Indonesia here at the AACE Annual Symposium. Wish all of you could be here!!!

    Seems like Fluor, Bechtel, CH2M, Hill International, Saudi Aramco all have booths here and all are looking to hire AACE Certified professionals!!

    BR,
    Dr. PDG, AACE Symposium, Anaheim, CA USA

  2. DrPDG says:

    PS Bu Lilly, I hope you realize that what you posted here would make an EXCELLENT paper……… Not sure where you are right now, but you may very well want to simply expand on this a bit and you have a paper that would almost SURELY be published…..,….

    Do give it some SERIOUS thought……….

  3. DrPDG says:

    PSS: What to you think would happen if you looked at the result over a LONGER time frame? Long term trends vs short term trends?

    Do you think it would be “right” or “appropriate” if you changed the time frame in order to get an R2 value that was higher?

    Keep up the good work on this topic!!! It is REALLY important, especially for anyone having to project costs into the future in these chaotic times……

  4. Lilly Wasitova says:

    Dr.P … thanks so much for encouraging me doing this 😀 ….The reason I only put the regression over two period is because the trend for longer time is really chaotic! and really hard to make proper analysis or assumption. It may be because I limited (intentionally) the reference for all data only for 2011, which shall gice us the overview of this year’s situation, especially with the crisis in US.

    I will try to expand this a liitl bit and will also think about making a paper out of this, although I have mine on progress … but as per your input, I can make further study on this ,… will send you both version then.

    Thanks again and have fun in Annaheim 😀

    (am currently in Germany, on my way back …. )

  5. Hey! This is my first comment here so I just wanted to give a quick shout
    out and say I truly enjoy reading through your blog posts.
    Can you recommend any other blogs/websites/forums that
    go over the same subjects? Appreciate it!

    • drpdg says:

      Dear Investasi Emas,
      If you email me privately, pauldgphd@gmail.com I can send you two additional paper which our Indonesian students have written using gold equivalency as the basis to perform cost estimates into the future.

      Also, if you contact our President Director, Ms. Yani Suratman, yanis@ptmc-apmx.com or phone her +6221-575-0911 she can set up a class for your program and project managers to learn how to use this (and other tools/techniques) to better manage your projects.

      BR,
      Dr. PDG,
      Sr. Technical Advisor, PT Mitratata Citragraha
      http://www.build-project-management-competency.com

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