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•Possible Applications•Future Work

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•Dow/Gold Ratio•Prior Economic Indicators of Performance

Dow/Gold Ratio

Our 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 and Methods•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•Determine Output Variable:

▫S&P or Gold [Binary (0,1)]: If monthly % Growth Rate of Gold Price > monthly % Growth Rate of S&P 500 then 1. If not, then 0.

•Partition Data•Build Models

▫C&RT▫K-Means▫Anomaly▫Logistic Regression▫Discriminant

•Evaluate Models

Key Models and Relationships Original Findings

+ Strong Clusters

+ NOT Time Sensitive

- Limited Range

v

Final Model

56.021

Final Model –

(April 2009)

(March 2009)

Key Models and Relationships Cluster 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

Different Ways to Visualize Data

Implications – Investment Strategy•Assumption – June 2009: 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

•Disclaimer: Be wary of Unprecedented Times

Future Work

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