A note on forecasting the prices of gold and silver: Asymmetric loss and forecast rationality

• Prices of gold and silver have recently witnessed large and substantial swings.
• Policymakers and investors need readily available and reliable forecasts of the prices of these two precious metals.
• We use survey data to study the shape of forecasters’ loss function and the rationality of their forecasts.
• We document a substantial heterogeneity regarding the shape of forecasters’ loss function and the rationality of their forecasts.

Given that the prices of gold and silver have witnessed large and substantial swings in recent years, policymakers and investors need readily available and reliable forecasts of the prices of these two precious metals. Survey data of forecasts of the prices of gold and silver provide a particularly rich data environment for policymakers and investors to study developments in the markets for gold and silver. Our research helps to develop a deeper understanding of the properties of survey data of the prices of gold and silver. We study the shape of forecasters’ loss function and the rationality of their forecasts. Assuming an asymmetric loss function weakens evidence against forecast rationality, but results depend on the empirical model being studied.