Investigating Gold's Pricing Factors

An open question in finance is whether gold pricing is inversely correlated with stock market performance and, therefore, serves as a hedge against asset distress. Some people in finance believe that gold is excessively bid up by wild buying by speculators while others believe it is undervalued.

The linked paper discusses a theory and an empirical model for gold pricing. The question that I’m going to begin to discuss in a series of posts is: “which side of the debate on gold has been fooled by randomness?”

But, first, some personal motivation. In the discussion of gold pricing, there are at least two different groups, armed with different facts, that are arguing about the fundamentals of gold pricing. If a person were to conduct a Bing or Google search to understand gold pricing, one might desire to see diversified search results identifying the two different camps of thought. Or a user might just want to see the search results that are most like their world view (personalized search). However, if you’re an investor, you want to be able to understand both sides of the argument, and you want to know which side is right so that you can bet against the other side.

In this blog post and the subsequent posts, I’ll start to examine how one can use the technology from my dissertation to do all of the above. So, in the short term, take a read through the linked paper to understand the fundamental view of gold pricing.

NOTE that TWO anonymous contributors to this work will, for the short term, remain anonymous.