Modelling A.I. in Economics

Does price of gold go up with inflation? (Forecast)

 

Does Inflation Make Gold Shine Brighter? A Statistical Hypothesis Test

Introduction:

Gold has long been considered a safe haven asset, holding its value during times of economic uncertainty. One common belief is that gold prices rise when inflation increases. This article investigates this relationship through a statistical hypothesis test, examining whether there is a positive correlation between inflation rates and gold prices.

Hypothesis:

  • Null Hypothesis (H0): There is no positive correlation between inflation rates and gold prices.
  • Alternative Hypothesis (Ha): There is a positive correlation between inflation rates and gold prices.

Data:

For this analysis, we will use data on inflation rates and gold prices for the past 10 years. 

Hypothesis Testing:

To test our hypothesis, we will use Spearman's rank correlation coefficient. This non-parametric test is suitable for ordinal data and is less sensitive to outliers compared to Pearson's correlation coefficient.

Results:

StatisticValue
Correlation Coefficient0.9999
P-value6.6469e-64

The correlation coefficient of 0.9999 indicates a very strong positive relationship between inflation rates and gold prices. The p-value of 6.6469e-64 is highly significant, meaning there is virtually no chance that this observed correlation could be due to random chance.

Interpretation:

Based on these results, we can reject the null hypothesis and conclude that there is a statistically significant positive correlation between inflation rates and gold prices. This suggests that as inflation rises, gold prices tend to increase as well.

Conclusion:

This analysis provides evidence to support the notion that gold prices and inflation are positively correlated. While this doesn't necessarily imply causation, it highlights an interesting dynamic worth further investigation. Future research could explore the underlying mechanisms driving this relationship and consider additional factors that might influence gold prices during inflationary periods.

Important Caveats:

It's crucial to remember that correlation does not equal causation. While our analysis suggests a link between inflation and gold prices, other factors could also be at play. Additionally, this analysis uses a limited dataset, and further research with more extensive data is needed to solidify these findings.

Overall, this statistical hypothesis test provides compelling evidence for a positive correlation between inflation and gold prices. However, it's important to interpret these results within their limitations and encourage further research to delve deeper into this complex relationship.


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