67: Gold Price Dynamics: Geometric Random Walk and ARIMAX Models

Music City Center 

This paper examines gold price dynamics using two complementary statistical approaches: the Geometric Random Walk (GRW) model and ARIMAX modeling, including ARIMA(0,1,1) with drift. The ARIMAX framework investigates the relationship between gold prices and global GDP, comparing log-level ARIMAX(1,0,1) and first-difference logarithmic models. Analysis reveals a statistically significant relationship, where a 1% increase in GDP corresponds to a proportional rise in gold prices. While the log-level model offers intuitive insights despite non-stationarity, both models highlight substantial uncertainty through wide prediction intervals. Forecasts are extended to 2030, demonstrating that all models predict rising gold prices but emphasize the challenges of long-term forecasting due to significant prediction intervals. The GRW model provides a robust benchmark for evaluating expert predictions and capturing uncertainty in future price movements. The addition of ARIMA(0,1,1) with drift captures trend-following behavior, enhancing understanding of gold price dynamics over time.
This integrated approach offers a comprehensive framework for gold price forecasting.

Gold price forecasting

Gold price returns

ARIMAX models

Geometric Random Walk

Prediction uncertainty

ARIMA(0,1,1) 

Business and Economic Statistics Section