Economics of gold price movement-forecasting analysis using macro-economic, investor fear and investor behavior features

Abstract

Recent works have shown that besides fundamental factors like interest rate, inflation index and foreign exchange rates, behavioral factors like consumer sentiments and global economic stability play an important role in driving gold prices at shorter time resolutions. In this work we have done comprehensive modeling of price movements of gold, using three feature sets, namely- macroeconomic factors (using CPI index and foreign exchange rates), investor fear features (using US Economy Stress Index and gold ETF Volatility Index) and investor behavior features (using the sentiment of Twitter feeds and web search volume index from Google Search Volume Index). Our results bring insights like high correlation (upto 0.92 for CPI) between various features, which is a significant improvement over earlier works. Using Grangers causality analysis, we have validated that the movement in gold price is greatly affected in the short term by some features, consistently over a five week lag. Finally, we implemented forecasting techniques like expert model mining system (EMMS) and binary SVM classifier to demonstrate forecasting performance using different features. © Springer-Verlag 2012.