Our CEO, Georgia Alaska, read in the newspaper that an inverted yield curve is a signal for
Question:
Our CEO, Georgia Alaska, read in the newspaper that an inverted yield curve is a signal for recession. She believes the best thing to hold during a recession is gold! She wants to protect our shareholders in the case of a recession--the company, like most, is sensitive to poor sales and thus poor performance during a recession. It is within the latitude of the management to enter into whatever sort of risk mitigation they deem fit, including making financial investments unrelated to the core business. Georgia wants to know if we can come up with some financial trading strategy that might both predict a recession and hedge against it by making trading profits to offset our anticipated lower sales. But she's not one to merely go off of hearsay or even her own gut feelings without some due diligence and thoughtful analysis. Let's do some analysis for her to see if holding gold on an inverted yield curve signal might be a good trading strategy.
Analysis
It's not always clear what analysis we want to run until we do some initial investigation. Part of being a good data translator is experimentation. Our first idea after talking to CEO Alaska might be to sit down and take a look at the relationship between the yield curve and gold prices. If there is some apparent correlation then the idea might be worth investigating further. We already have some tools from previous labs that might prove useful here. We have a time series library and we know how to present them as plots. That sort of visualization is often just the right tool to experiment with--it might prompt us to abandon the idea or it might give us a new insight into something else to investigate. So let's start with a plot of the gold price along with our yield curve
That's our first goal. Something that looks like this:
Expert Answer:
