Forecasting The Price Of Gold Using The Arima Model: An Alternate Investment Strategy

Abstract

The world has experienced numerous financial and economic crises over the last few decades, which makes us consider making investments that will improve our readiness for tense situations like financial and economic catastrophes. During stressful periods in the past, all investors were biased in their decision to invest in different asset categories. Particularly, in the case of precious metals, we witnessed an extreme over-reliance on gold due to its reputation and low-risk investment option for traders and arbitrageurs in difficult times. It becomes increasingly crucial for an investor to comprehend the value of gold in the near future by projecting the gold price. We have taken 14 years of monthly data to construct an effective ARIMA model, and we can try to determine the expected momentum in the metal. This understanding prompted us to conduct a study to forecast gold prices considering six months of gold prices and compare them with the spot gold price of the imminent future, which shows a positive trend. It is very evident that the price accuracy is not particularly great in the situation of a worldwide crisis. We observed that the price accuracy is not very high during volatile times, and model accuracy is questionable, but it has been observed that the model in the recent past has predicted the gold prices fairly.