Forecasting Output Growth of Advanced Economies Over Eight Centuries: The Role of Gold Market Volatility as a Proxy of Global Uncertainty

In this paper we develop a proxy for global uncertainty based on the volatility of gold market over the annual period of 1311 to 2019, and then use this proxy metric to forecast historical growth rates for eight advance economies namely, France, Germany, Holland, Italy, Japan, Spain, the United Kingdom (UK), and the United States (US). We find that for the within-sample period, uncertainty negatively impacts output growth, but more importantly, over the out-of-sample period, gold market volatility produces statistically significant forecasting gains. Our findings are robust to an alternative measure of uncertainty based on the volatility of the changes in long-term sovereign real-rates over 1315 to 2019. These historical results have important implications for investors and policymakers in the current context in which high frequency gold price data is available.