Predicting Metal Prices From A State-Space Analysis Of The Economy

Metal prices are often predicted by relying on time trend projections of various economic indicators or even the trend in price itself Thus, time is the underlying explanatory variable acting through at best, a limited selection of economic variables. The price prediction method described in this paper differs from this by analyzing hundreds of economic variables to develop a few principle components that automatically capture the fundamental changes in the economy and delete duplicate or irrelevant information. This leaves a few principle variables to describe a state-space representation of the economy which can then be used for prediction. Forecasts of the price of a metal are then made based on these principle variables.