The+Golden+Question

=**“The Golden Question”** =

Introduction:
Conventional wisdom holds that the stock market and gold prices are inversely related. When expectations of the stock market are low, people put their money in gold. When the market is expected to rise, gold prices typically fall. This study will examine whether or not macroeconomic conditions and indices, have any bearing on this relationship.

Specifically, the study will examine the importance of American socioeconomic conditions on the relative prices of Gold to stocks. Accordingly, we will examine commodity and energy prices, inflation and unemployment rates, political power and the propensity of companies to go public. While seemingly unrelated, we hope to find an unknown relationship in the data.

The data was collected from the Bureau of Labor Statistics, John Kotter’s IPO Information page, Misery Index Homepage and FRED. Monthly data was from January of 1992 through December of 2008 collected and is discussed in greater detail below. To be presented on May 13, the project potential appeals to two audiences. Investors might be interested in the research. Any opportunity to better understand the relationship between macroeconomic conditions and growth in stock price or gold prices would likely resonate strongly with the group. The project might also be of interest to persons curious data about macroeconomic forecasting and economic indicators; or simply data mining’s effective potential in the finance and economics.

**LITERATURE REVIEW & PREVIOUS WORK**
Extensive work has been done on data mining in macroeconomic research. Links to research projects and papers follow:  []  [] []  There is also discussion on the performance comparison on Gold and the S&P 500. Posted in March of 2009 to //Gold versus Paper//, a financial blog spot, “  [|Road map - gold stocks versus S&P 500] ** ” ** highlights differences in performance of gold and broader stock prices in the current bear market.

 However, to our knowledge comparing and evaluating these particular economic indicators and their relationship to gold price has never been examined.

HYPOTHESIS
We expect it will be better to hold gold during recessions or when the macroeconomic components are otherwise down. When macroeconomic are favorable we expect stock prices to be higher.

PROCEDURE
The mining will follow CRISP guidelines. The rest of the Project is outlined below: Completed: Not yet completed: 
 * Gather data
 *  Clean data
 *  Build models – Binary classifiers, and association models will be of particular interest.
 *  Interpret results
 *  Build and test final model
 *  Summarize key findings
 *  Explore and talk to professionals about key findings and insights
 *  (Investors and Professors)
 *  Develop a final report and presentation
 * Present and deliver Findings

Data:
The Table to below lists all the macroeconomic variables considered in out model. The input variables were taken from sources discussed in the //Introduction//, while the binary output variable calculated by comparing the monthly percent change growth of in Gold Prices to the same rate of the S&P. More explicitly the output variable is: S&P or Gold [Binary (0,1)]: If monthly % Growth Rate in Gold Price is greater than monthly % Growth Rate in S&P 500 then 1. If not, then 0.

Table 1 : Variables Considered



** References **
“Consumer Expenditure Surveys.” //US Bureau of Labor Statistics (BLS) Homepage//. Accessed 2 April 2009. [].

“Economic Data--(FRED)®” //Economic Research: Federal Reserve Bank of St.// //Louis//. Accessed 2 April 2009. [].

“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. []. <span style="font-weight: normal; color: #632423; font-family: Cambria; msoasciifontfamily: Cambria; msohansifontfamily: Cambria;"> <span style="font-family: 'Cambria','serif'; mso-ascii-theme-font: major-latin; mso-hansi-theme-font: major-latin; mso-bidi-font-family: 'Times New Roman'; mso-bidi-theme-font: major-bidi;">