Striking gold: Spears finance department head harnesses ChatGPT to analyze gold market

Friday, November 1, 2024

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Terry Tush | Director of Marketing & Communications | 405-744-2703 | [email protected]

Dr. Betty Simkins marveled at the organized, well-written email that suddenly appeared
in her inbox.

She knew her oldest son, Luke, rarely had time for quick replies as a busy software
engineer who works with artificial intelligence. But in the fall of 2022, when the
Spears School of Business Department of Finance head asked her kids to contribute
to the annual holiday newsletter they send to friends and loved ones, she barely had
time to blink before Luke was the first to finalize his year-in-review paragraph. 

Luke shamelessly spoiled his secret. He had prompted a newly launched chatbot to write
his segment of the letter, sparking his mother’s amused curiosity about the cutting-edge
technology. How did ChatGPT work? What were its capabilities? 

After an early introduction to ChatGPT thanks to her son’s tech-savvy shenanigans,
Simkins has extended her generative AI knowledge far beyond fun and games, shedding
light on its power to drive innovative academic research. The Oklahoma State University
Regents Professor teamed up with lead author Dr. Yunchuan Sun and his students, Ying
Xu and Buxin Zhang, from Beijing Normal University in China for the study, “Investor
sentiment in gold and gold futures market: Evidence from ChatGPT-generated sentiment
index.” 

The artificial intelligence tool highlights the strong relationship between investor
sentiment and gold futures returns, especially in periods of economic turmoil. While
the researchers’ conclusions about the gold market bolster previous scholarship in
a popular field, the most groundbreaking insight comes from their methodology itself.

“We also confirmed that leveraging AI to analyze market trends is not only feasible,
but it’s highly effective,” Simkins said. “This is one of our really important findings because AI is so new,
so we show that the ability of ChatGPT to process and take vast amounts of textual
data allows us to capture and quantify, in particular, subtle shifts in investor sentiment.”

The fluctuating attitudes of investors can significantly impact returns for gold futures,
which, at their core, are agreements to buy gold at a set price on a later date. If
investors predict an economic crisis or a future spike in gold prices, then they might
rush to buy gold, driving the prices up. Gold futures are intriguing to many investors
because of their hedging function, potentially providing a safety net during times
of market instability.

Social media is a revealing tool for analyzing these investors’ opinions — which range
from logical to emotional — but it isn’t easy to review a mind-boggling amount of
data.

Imagine sifting through thousands of social media posts about the gold market, carefully
assigning a numerical value to each one after reading every word. This would require
painstaking effort from multiple researchers, consuming hours that could be spent
in numerous other ways.

In Simkins’ study, no human had to trudge through that tedious process. Instead, the
team trained ChatGPT to create a daily investor sentiment index using the gold discussion
forum on Guba, a bustling social media platform for investors in China. 

The beginning of the prompt, written for a machine, reads like a college assignment.

You are a gold futures investor and I will give you a post title. What emotions does
this post title evoke in you? Please rate the mood on a scale of -50 to 50.

Recognizing key words and connotations, ChatGPT went to work, reviewing posts from
2010 to 2022. For example, a post reading “The short sellers are worried sickly now”
received a score of -20, clearly indicating negative sentiment.

“This is what our sentiment index aims to achieve, not only differentiating between
positive and negative, but also quantifying their intensity,” Simkins said.

The index required fine-tuning. Posts with more comments and engagement received more
weight because of their greater potential to influence investors. Any neutral post
or a post unrelated to gold received a score of 0, eliminating it from the analysis.
Using mathematical equations and 4,459 data entries, the index took shape.

To determine how investor attitudes influence the market, the researchers looked at
the historical gold futures daily closing prices from the time periods they analyzed.
They also accounted for control variables that could have impacted gold futures returns,
including the United States inflation rate. The data indicates positive investor sentiment
did, indeed, boost gold futures returns. The findings show when positive investor
sentiment grows by 1%, as measured by the index, average gold futures returns will
climb by 0.143% if other variables are consistent.

Simkins, Sun, Xu and Zhang also used the index to analyze four market crisis periods:
the 2015 stock market crash, the 2018 beginning of the U.S.-China trade war, the 2020
COVID-19 pandemic and the 2022 Russian invasion of Ukraine. Although the stock market
suffered in times of turmoil, gold futures stayed afloat in comparison. In these crisis
times, investor sentiment aligned more strongly with gold futures price shifts, according
to the index. 

This data highlighted what Simkins called the “safe haven” power of gold futures amid
economic chaos, but the index also offered insight into “normal markets,” she said.
Real-world investors could use similar AI-powered tools on an everyday basis to track
market trends and make risk-minimizing choices.

“As an academic, what really thrilled me about this line of research is this is something
really positive about ChatGPT,” Simkins said.

Relying on a 2-year-old chatbot as a research assistant does come with caveats, as
Simkins is well aware. The young technology can make mistakes, and it’s more of an
enhancement to human cognition instead of a substitute for it. Simkins emphasized
the importance of scholars clearly disclosing the use of AI in their studies, including
the name of the specific tool. In her case, it’s in the paper’s title.

If researchers know how to interact with AI, then they can sharpen its functions in
incredible ways. In Simkins’ study, the researchers randomly sampled Guba posts from
three separate years and manually calculated their positive or negative ratings, comparing
them with ChatGPT’s scores to gauge how well the index was working. They then further
trained ChatGPT, altering the prompt to achieve a more accurate result.

Although the researchers initially planned to publish in a letters journal, they are
now working on expanding their paper for a larger journal, elaborating on their experiences
with training ChatGPT. Their novel method opens the door to vast possibilities in
various fields of study because of AI’s ability to streamline research processes.

Simkins, a prolific researcher who serves on multiple editorial boards, now not only
can teach her son something about AI, but also can use her work to inspire others.

“You want it to influence other researchers,” Simkins said. “We’re hoping what we’ve
done here, it could be replicated for many things. In finance, it could be trying
to predict lots of other things and in other markets. Not only are we excited about
what we find, but also the purpose of research is to help move research forward, and
here’s a fairly new tool to do that.”

Photos by: Adam Luther
Story by: Hallie Hart | Discover@Spears Magazine