The “Golden” Question

Ali AlyabisAndrew ClarkDavid Lee

S & P 500

Gold?

or

Executive Summary•The “Golden” Question•Previous Research•Our Hypothesis•Procedure and Methods•Identify Key Models and Relationships•Final Model•Different Ways to Look at the Data•Investment Implication

The “Golden” Question“If at the beginning of next month you had $1,000, would you want to invest in…”

S & P stocks or Gold?

?????

Previous Research•Prior Economic Indicators of Performance

•Dow/Gold Ratio

Our Hypothesis

ECONOMIC EXPECTATIONS

ECONOMIC EXPECTATIONS

•Follow CRISP guidelines

•Gather monthly data from April 1970-Present:▫ US Bureau of Labor Statistics

▫ FRED (Federal Reserve Economic Database)

▫ Misery Index

▫ S&P (Yahoo Finance)

▫ Gold Prices (Goldnews.com)

•Clean data

Procedure and Methods

•Output: Binary: If %Δ Gold Price > % Δ S&P, then “GOLD.” Else, S&P

•Partition Data

•Build and Evaluate

•Discuss Implications

Procedure and Methods

Key Models and Relationships Original Findings

+ Strong Clusters

+ NOT Time Sensitive

- Limited Range

v

Final Model

56.021

Validation Set Performance

Other Nuggets – Today

(April 2009)

(March 2009)

Other Nuggets - ClustersCluster Name Time

Period Major Event

1 “Panned Out” 1978 - 1982 Stagflation2 “Prospectors” 1983 - 1988 Ali Born5 “The Golden Era” 1989 - 1997 Berlin Wall Falls4 “Mine Kamph” 1998 - 2001 .dot Com Bubble and Y2K

3 “Gold Digs, to Brokety Broke” 2002 - 2008 Crisis from Authority

Other Nuggets – Gold September

Buy Gold?

Implications – Investment Strategy

Given: $1,000 in June 2009

Assumption – Economic Growth and Inflation will be Low

IF inflation is expected to be low, but not negative then invest in Gold

IF inflation is negative, invest in S&P

What We’d Do DifferentVariables

▫Output – ETFs, Portfolios

▫Inflation Expectations – TIPS

More

BibliographyWeb Articles

• http://goldnews.bullionvault.com/dow_gold_ratio_042920093

• http://goldnews.bullionvault.com/dow_gold_ratio_102220085

• “Consumer Expenditure Surveys.” US Bureau of Labor Statistics (BLS) Homepage. Accessed 2 April 2009. http://www.bls.gov/cex/#data

• “Economic Data--(FRED)®” Economic Research: Federal Reserve Bank of St. Louis. Accessed 2 April 2009. http://research.stlouisfed.org/fred2/

• “Historic Data for S&P 500 Stocks” Accessed 9 April 2009. http://biz.swcp.com/stocks/

• Ritter, John R. “Founding dates for 8,823 IPOs from 1975-2008.” IPO Data. October 2008. Accessed 9 April 2009. http://bear.cba.ufl.edu/ritter/FoundingDates.htm