This project focuses on predicting gold prices (denoted as GLD) using machine learning techniques. The analysis involves various financial indicators such as stock prices and currency exchange rates to predict the value of gold based on historical data.
The primary objectives of this notebook are to:
- Build a Machine Learning Model: Create a model that can accurately predict GLD prices based on other financial metrics.
- Data Insights: Obtain insights from the data using the Pandas library.
- Correlation Analysis: Analyze the correlation of other features with the GLD price.
- Model Training and Evaluation: Split the data into training and test sets for model training and evaluate its performance.
The dataset utilized for this analysis is structured in a Comma-Separated Value (CSV) file format, containing:
- Rows: 2290
- Columns: 7
- Date: Date in MM/DD/YYYY format (object type).
- SPX: The Standard and Poor’s 500 Index (float).
- GLD: SPDR Gold Shares ETF price (float).
- USO: United States Oil Fund price (float).
- SLV: iShares Silver Trust price (float).
- EUR/USD: Currency pair value for Euro to USD (float).
For the data source link, please insert the relevant link here.
The dataset contains five numerical columns and one date column.
To begin working with the data, we first need to import the necessary libraries.
import pandas as pd # Load data & perform basic operations
import numpy as np # Numpy for numerical operations
import matplotlib.pyplot as plt # Matplotlib for plotting graphs
import seaborn as sns # Seaborn for enhanced data visualization
from sklearn.model_selection import train_test_split # Split data into training and testing sets
from sklearn.ensemble import RandomForestRegressor # Import the Random Forest Regression Model
from sklearn import metrics # Performance metrics for model evaluationWe load the gld_price_data.csv file and review the structure of the data.
# Load the data from CSV file
gold_data = pd.read_csv("gld_price_data.csv")
# Display the first five and last five rows of the dataset
print(gold_data.head())
print(gold_data.tail())After loading, we analyze the fundamental aspects of the dataset.
- Shape of the Dataset: To get the number of rows and columns:
print(gold_data.shape) # Output: (2290, 6)- Basic Information:
print(gold_data.info()) # Provides info on data types and non-null counts- Missing Values:
print(gold_data.isnull().sum()) # Check for missing values in each column- Statistical Summary:
print(gold_data.describe()) # Get descriptive statistics- SPX: Represents the S&P 500 index, which tracks the performance of 500 large companies listed on stock exchanges in the United States.
- GLD: Represents the price of SPDR Gold Shares, part of the SPDR family of exchange-traded funds (ETFs).
- USO: Represents the United States Oil Fund LP (USO), which is a traded security for oil investment.
- SLV: Represents the iShares Silver Trust, an ETF tracking the silver price.
- EUR/USD: Represents the exchange rate between Euros and U.S. Dollars.
We need to understand how GLD prices correlate with other financial variables.
To identify relationships, we compute a correlation matrix.
# Convert the 'Date' column to datetime type for proper analysis
gold_data['Date'] = pd.to_datetime(gold_data['Date'], errors='coerce')
# Compute the correlation matrix excluding non-numeric columns
correlation = gold_data.select_dtypes(include=['float64', 'int64']).corr()
# Displaying the correlation matrix
print("Correlation Matrix:")
print(correlation)
# Visualizing the correlation using a heatmap
plt.figure(figsize = (8,8))
sns.heatmap(correlation, cbar=True, square=True, fmt='.1f',annot=True, annot_kws={'size':8}, cmap='Blues')
- A positive correlation indicates that as one variable increases, the other tends to increase.
- A negative correlation indicates that as one variable increases, the other tends to decrease.
- Zero correlation indicates no relationship between the variables.
From the correlation matrix output, we observe:
- GLD (Gold) and SLV (Silver) show a strong correlation (approximately +0.87).
- GLD has a negligible positive correlation with SPX (about +0.05).
- GLD has a mild negative correlation with USO (approximately -0.19).
Before training the model, it is useful to visualize the distribution of GLD prices.
# checking the distribution of the GLD Price using histplot
sns.histplot(gold_data["GLD"], kde=True, color="Green")
plt.show()
The visualization indicates that most GLD prices are concentrated around the value of 120, with fewer occurrences at the extremes.
Here we set the target variable (Y) as GLD prices and the feature set (X) as the other stock prices excluding GLD and the date.
# Define features (X) and target variable (Y)
X = gold_data.drop(["Date", "GLD"], axis=1) # All columns except 'Date' and 'GLD'
Y = gold_data["GLD"] # Target variable GLD
print(X.head()) # Display the features
print(Y.head()) # Display the target variableWe split the dataset into training and test sets to evaluate the model’s performance.
# Dividing the data into training and testing sets (80% - 20% split)
X_train, X_test, Y_train, Y_test = train_test_split(X, Y, test_size=0.2, random_state=2)
print(f'Training set size: {X_train.shape[0]}')
print(f'Test set size: {X_test.shape[0]}')We utilize the Random Forest Regressor, which is an ensemble method that combines several decision trees to increase the predictive performance.
# Initializing the Random Forest Regressor
regressor = RandomForestRegressor(n_estimators=100)
# Training the model with training data
regressor.fit(X_train, Y_train)After training the model, we predict the GLD values using the test data and evaluate the model’s accuracy.
# Making predictions on the test set
test_data_prediction = regressor.predict(X_test)
# Evaluating the model using R-squared metric
error_score = metrics.r2_score(Y_test, test_data_prediction)
print("R-squared score: ", error_score)We visualize how well the model’s predictions reflect the actual GLD prices.
# Plotting actual vs predicted values
plt.plot(Y_test, color='blue', label = 'Actual Value')
plt.plot(test_data_prediction, color='green', label='Predicted Value')
plt.title('Actual Price vs Predicted Price')
plt.xlabel('Number of values')
plt.ylabel('GLD Price')
plt.legend()
plt.show()
The analysis detailed in this notebook demonstrates the application of machine learning to predict gold prices using historical data from various financial indicators. The Random Forest Regressor achieved an R-squared score of approximately 0.989, indicating a high level of predictive accuracy. This suggests that our model is capable of effectively forecasting GLD prices based on the input features.
Future enhancements could include:
- Exploring additional features that could improve prediction accuracy.
- Testing other machine learning algorithms for comparison.
- Continuously updating the model with new data as it becomes available.
