Regression and Hidden Markov Models for Gold Price Prediction

In the long run, gold price is positively related to inflation rates because gold is a perfect asset to hedge against inflation. In the short run, gold price fluctuates a lot. Many factors can cause gold price volatility, such as economic and political uncertainties, exchange rates, interest rates and so on. Here we try several models to predict monthly gold prices, including linear regression model and ARIMA model. We also try to predict monthly gold returns with hidden Markov model. It turns out that HMM is much better.