Forecasting the Price of Gold Using a Systematic GARCH Analysis with Exchange Rate Volatility

Gold has also been a store of value and hedge against economic shocks for citizens and even nations for centuries. This paper explores the unpredictable nature of exchange rate volatility and if any relationship or influence exists, on the price of gold on the world market. Using GARCH models we analyzed data for the past 20 years and by incorporating our Parsimony and Dominance Preference Indices, we chose t -GARCH (1,1) and we further used TGARCH (1,1) to capture the inherent positive and negative shocks in the volatility of exchange rate and the price of gold. Using these models we forecasted for the last 5 years for the data successfully, i.e. from 2015 to 2020