Project Gold Bubble

Gold become a prior investment choice since it has been climbing again during economic recession. Surprised by successive new records of gold price for the last decade, we strongly suspected the "bull" market of gold and a related concern raised is that the whether the current gold is in a "bubble" and it might be overvalued. With this question, we found out a research "The 10-year gold bull market in perspective" published by World Gold Council, 2010. Based on its study, we will focus on what the original data the paper had, redesign the whole statistical process, and try to prove the historical gold price was overvalued. First, we contrast the past historical data of nominal and real gold price, adjusted by inflation rate, CPI or GDP to examine how the interest rate affect the gold price during the ten years. Then we look over the close relationship between gold and different global assets, such as S&P 500, oil price, commodity price, by correlation. If so, it will indicate that bubble exist.

We do our best to use the knowledge we learn from Quatitative Investment Analysis Methods course. Candidates should be able to construct a simple regression model (equation), state the assumptions under which such a (linear) model is valid, and discuss the limitations of a simple regression model. Given the estimated model parameters (coefficients), you should be able to use the model to predict the dependent variable using an assumed value of the independent variable. Finally, you may be required to interpret an ANOVA table and test the significance of estimated regression coefficients. Note that an F-test, in the context of a simple regression, is equivalent to a t-test of the significance of the estimated slope coefficient.

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