Is the prediction of precious metal market volatility influenced by internet searches regarding uncertainty?

Abstract

There are countless articles on the relationship between economic uncertainty and the precious metals market, but studies examining whether economic uncertainty related queries (EURQ) can provide valuable information for the prediction of precious metal price volatility are scarce. Therefore, this paper examines the predictive power of EURQ for price volatility in the precious metals market with the GARCH-MIDAS model structure. The parametric results indicate a significant positive effect of the EURQ indicator on precious metal market volatility and mixed results for its asymmetric variation. Additionally, we investigate the performance of forecasting models that incorporate long- and short-term asymmetric effects from an out-of-sample perspective. We discover that using information from negative changes in returns and positive and negative shocks to the EURQ is more beneficial for forecasting precious metal futures price volatility than forecasting models that consider only a single indicator. Our findings emphasize the importance of queries on uncertainty-related topics in forecasting gold, silver, and copper price volatility and provide valuable guidance for rationally planning investment ratios.