Article
Gold Price Modeling Using System Dynamics
Wipawee Tharmmaphornphilas*, Haruetai Lohasiriwat, and Pathompol Vannasetta
Department of Industrial Engineering, Faculty of Engineering, Chulalongkorn University, Bangkok 10330, Thailand * E-mail: wipawee.t@eng.chula.ac.th Abstract. The global gold market has recently attracted a lot of attention and the price of gold is relatively higher than its historical trend. This paper constitutes the first exercise of system dynamics applied to predict gold price in monthly frequency from January 2010 to June 2011. Rather than static forecasting characteristics found in another quantitative method, time-series, system dynamics allows possibility for prediction based on capturing causal interactions and consequently the feedback loops usually found in a complex system behaviour such as the gold price system. Therefore, it was expected that moving toward forecasting method utilizing system dynamics model could result in better prediction of the gold price. Our paper supports such hypothesis. Having ability to take into account of qualitative factors particularly political chaos and economic crisis events, the model developed in this paper reduces the prediction error, mean absolute percent error (MAPE), to merely 2% compared to approximately 9% error found with Holt-Winter Exponential Smoothing and 11% error using Box-Jenkins Method. Keywords: System dynamics model, gold price, forecasting.
ENGINEERING JOURNAL Volume 16 Issue 5 Received Date Month 2012 Accepted Date Month 2012 Published 1 October 2012 Online at http://www.engj.org/ DOI:10.4186/ej.2012.16.5.57
DOI:10.4186/ej.2012.16.5.57
1. Introduction
For many reasons, gold has been used in various sectors (e.g., jewellery, electronics, computers, medical, and aerospace). Governments use gold as a relative standard for currency equivalents. Investors hold gold reserves as a hedge against inflation, or currency devaluation and also to diverse their portfolio...