IEEE TRANSACTIONS ON COMPUTATIONAL SOCIAL SYSTEMS, VOL. 8, NO.
6, DECEMBER 2021
A New Hybrid VMD-ICSS-BiGRU Approach for
Gold Futures Price Forecasting and
Algorithmic Trading
Yuze Li, Shouyang Wang , Yunjie Wei , and Qing Zhu
Abstract— The gold market plays a vital role in the world
economy. Due to its complex and nonstationary nature, pre-
dicting the price of gold is particularly challenging. In this
study, a new hybrid forecasting approach named variational
mode decomposition (VMD)-iterated cumulative sums of squares
(ICSS)-bidirectional gated recurrent unit (BiGRU) is proposed
by integrating BiGRU deep learning model, VMD, and iterated
cumulative sum of squares algorithm. The forecasting framework
is able to extract the inner factors and patterns within the
gold futures market movements, decompose its correlation with
external markets and detect shifts within market conditions
in order to accurately predict price movements in the gold
futures market. The experimental results show that the hybrid
forecasting approach can improve the prediction performance
significantly in comparison to the benchmarks. Furthermore,
we extend the proposed hybrid forecasting approach to generate
trading strategies and test trading performance of the gold
futures market. The testing results over an out-of-sample period
of 11 years (2008–2019) indicate that the strategy generated based
on the prediction of the proposed approach displays high levels
of consistency in generating positive returns and outperforms
several other common trading strategies under various market
conditions. The approach also shows consistent better results
when generalized to the spot gold market, providing practical
guidance for minimizing investment risk and hedging strategies
in the gold commodity market.
Index Terms— Algorithmic trading, bidirectional gated recur-
rent unit (BiGRU), gold futures price forecasting, variational
mode decomposition (VMD).
I. I NTRODUCTION
G OLD is one of the most important commodities in the
financial markets, and it plays a vital role in the world
economy [1]. For many countries, gold is a major part of the
Manuscript received August 12, 2020; revised March 29, 2021; accepted
May 16, 2021. Date of publication June 15, 2021; date of current version
December 1, 2021. This work was supported by the National Natural
Science Foundation of China under Grant 71801213 and Grant 71988101.
(Corresponding author: Yunjie Wei.)
Yuze Li is with the Academy of Mathematics and Systems Science, Chinese
Academy of Sciences, Beijing 100190, China, and also with the School of
Economics and Management, University of Chinese Academy of Sciences,
Beijing 100190, China (e-mail: richardyz.li@mails.ucas.ac.cn).
Shouyang Wang is with the Academy of Mathematics and Systems Science
and the Center for Forecasting Science, Chinese Academy of Sciences, Beijing
100190, China, and also with the School of Economics and Management,
University of Chinese Academy of Sciences, Beijing 100190, China (e-mail:
sywang@amss.ac.cn).
Yunjie Wei is with the Academy of Mathematics and Systems Science
and the Center for Forecasting Science, Chinese Academy of Sciences,
Beijing 100190, China (e-mail: weiyunjie@amss.ac.cn).
Qing Zhu is with the International Business School, Shaanxi Normal
University, Xi’an 710000, China (e-mail: zhuqing@snnu.edu.cn).
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1357
central bank reserves as it is used as a price controlling lever
and a strategic economic resource [2]. For many investors,
gold is a valuable asset that serves as an investment safe
heaven which can be used to hedge against price inflation and
other financial risks [3]. In the precious metals market, gold
is the most commonly investment commodity [4]. Therefore,
predicting the price of gold accurately is of great importance
for investors, portfolio managers, as well as policy makers. For
example, it can create great investment opportunities to benefit
investors as small improvements in forecasting accuracy can
generate significant profits [5]. However, the gold market is
not only nonstationary and volatile in nature, and it is also
impacted by various factors, such as investor expectations,
related market movements, and political events [6]. Therefore,
due to its complexity, predicting trends in the gold market
has remained one of the most challenging fields in time-series
forecasting [7].
This article is related to two strands of literature. The
first involves the studies on the influencing factors of the
gold market. Numerous studies analyzes the effects of input
variables such as foreign exchange rates and crude oil prices
on the precious metals market [8]. For example, [9], [10] and
[11] find that exchange rates such as the US Dollar (USD)
have significant predictive power in forecasting commodity
prices. In addition, [12], [13] and [14] conclude that the price
of oil is a major macroeconomic factor that has significant
explanatory power on the price fluctuations of gold, showing
a high correlation of close to 85% between the two markets.
Although previous studies have examined the impacts of
these external variables and incorporated them in forecasting
gold price movements, the factors incorporated in these studies
mainly consists of the original observable price variables from
the external markets. However, since the effect duration of
different factors on the gold price varies [15], these observable
variables may be insufficient to fully reflect the impact of
external markets on the gold market. In this article, we select
four external markets as input variables, including the Brent
Crude (LCO), the Western Texas Intermediate Crude (WTI),
the USD Index (DXY) and Gold Spot USD (XAUUSD).
To further extract the hidden relationship between the gold spot
market and the external markets, this article utilizes variational
mode decomposition (VMD) to decompose the price informa-
tion in the selected external markets into subseries of different
frequencies. The overall correlation between the markets is
modeled through multiple correlations between the subseries
of markets. This novel “correlation decomposition” represen-
1358 IEEE TRANSACTIONS ON COMPUTATIONAL SOCIAL SYSTEMS, VOL. 8, NO. 6, DECEMBER 2021
tation disentangles the relationship between the gold futures
market and other external markets, which enables the model
to uncover the hidden relationship between the inner factors
of gold futures market and the selected external markets.
The second strand of literature involves the forecasting mod-
els that have been adopted in the financial market predictions.
In earlier studies, traditional econometric approaches were
applied to forecast the commodity prices. Some of the models
commonly used include the moving average model (MA),
autoregressive model (AR), autoregressive moving average
model (ARMA) [16], [17], and generalized autoregressive
conditional heteroscedastic model (GARCH) [18], [19].
The previously mentioned mathematical models have a
major drawback that is the models all have the linearity
and stationarity assumptions, which is hardly satisfied by the
complex and nonstationary nature of the financial market.
Therefore, these assumptions tend to yield poor forecasting
results [20]. To overcome these limitations and take advantage
of the rapid advances in computing technologies, researchers
have adopted deep learning approaches in financial market
forecasting. Deep learning is a specific type of artificial neural
networks (ANNs) consisting of multiple hidden layers. In com-
parison to traditional econometric approaches, it contains
enhanced functional representation ability and displays supe-
rior performance [21], [22]. For example, [23] utilize Deep
Belief Network (DBN) in combination with the Restricted
Boltzmann Machines (RBM) to achieve decent results in stock
index forecasting. Zhao et al. [24] propose a bootstrapping
aggregation and stacked denoising autoencoders (SDAE) to
forecast oil prices. Doering et al. [25] use convolutional
neural network (CNN) in predicting stock prices based on
high-frequency data. Deng et al. [26] combine deep direct
reinforcement (DDR) method, fuzzy deep direct reinforce-
ment (FDDR) method together with recurrent deep neural
network (RDNN) to forecast the Chinese futures market. Fis-
cher and Krauss [27] utilize long short-term memory (LSTM)
networks to predict the market trend of S&P 500 stocks
between 1992 and 2015. In addition, [28] apply deep CNNs
to identify buy, sell and hold points for stocks and exchange
traded funds.
To further improve the forecasting ability, an ensemble
learning approach based on the concept of divide and con-
quer have been proposed. This approach first decomposes
the original financial time series into different cycle factors
then integrate the forecast results of those factors [29], [30].
Yu et al. [31] adopt a hybrid approach of complementary
ensemble empirical mode decomposition (CEEMD) and
extended extreme learning machine (EELM) to forecast the
crude oil price. [15] use CEEMD to decompose the historical
price of international gold into price components and com-
bined support vector machine (SVM) and ANN to forecast
the gold prices. Wang et al. [32] propose a novel two-phase
decomposition technique by integrating CEEMD and VMD,
and back-propagation neural network (BPNN) to forecast the
electricity prices and air quality index in Beijing and Shanghai.
However, one of the drawbacks of this approach is that the
prediction error from decomposition may accumulate, which
negatively affects the forecasting ability of the models [33].
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To take advantage of the above mentioned methods and
to overcome their respective limitations, this article proposes
a hybrid deep learning neural networks approach by inte-
grating signal decomposition technique, structural breakpoint
detection and recurrent neural network to predict the gold
futures price. First, variational mode decompositon (VMD) is
used as the signal decomposition technique to decompose the
original complex and nonstationary time series into simple
and stationary subseries. The subseries are inputted into the
prediction model as part of the input features, which allows the
model to capture the inner patterns of the data. Second, several
technical indicators such as the simple moving average (SMA)
are included as model inputs. Third, iterated cumulative sums
of squares (ICSS) algorithm is utilized to identify the structural
breakpoints in the market. The detected structural breaks
are incorporated into the prediction model through a binary
dummy variable, which depicts the changes in market condi-
tions. Furthermore, the decomposed subseries of the selected
external markets, as well as the respective correlations with
the subseries of the gold futures market, are used as the input
feature to represent the external market factors. Finally, all the
aforementioned features are inputted into the model to forecast
the prices of the gold futures market. As proposed in [34], time
series data are bidirectional, which means the current state
is the reflection of the past state and the basis of the future
state. Unlike previous deep learning models that assume the
time series data only contain an unidirectional relationship,
the approach proposed in this article adopts a bidirectional
gated recurrent unit (BiGRU) approach in which information
is extracted from the forward direction and backward direction.
The proposed approach is completely data-driven and requires
fewer assumptions, which make it more consistent with reality.
To the best of our knowledge, this is the first approach that
combines signal decomposition, structural break detection, and
bidirectional deep learning structures in the application of
gold market forecasting. In order to verify the practicality
of the model, the prediction outputs are used to identify
the buy, sell, and hold points in the gold futures prices and
generate trading strategies. The evaluation results indicate that
the proposed approach consistently outperforms some other
selected common trading strategies. Furthermore, the approach
is applied to the spot gold market, which displays consistent
superior trading performances.
The rest of this article is organized as follows. Section II
outlines the theoretical concept design of the model.
Section III presents the empirical results and financial
performances. Section IV concludes and provides plans for
future works.
II. T HEORETICAL C ONCEPT D ESIGN
This section presents a theoretical concept design for the
proposed hybrid VMD-ICSS-BiGRU deep learning approach
for forecasting gold futures prices and conducting algorithmic
trading in the gold futures market. Section II-A provides an
overview of the proposed approach, and Sections II-B–II-G
describe the main steps of the approach, together with the
related techniques, respectively.
LI et al.: NEW HYBRID VMD-ICSS-BiGRU APPROACH FOR GOLD FUTURES PRICE FORECASTING 1359

multistep ahead predictions are performed with the horizon of

one, two, and three days to test the robustness of the approach.
Step 5 (Data Labeling):
To further evaluate the prediction accuracy and financial
performance of the approach. Each data point in the sample is
labeled as a “Hold,” “Buy,” or “Sell” point based on the daily
closing price and the log-returns of the asset.
Step 6 (Algorithmic Trading):
The one-day ahead prediction result generated is used to
formulate the trading strategies according to the data labeling
rules formulated in the previous step. The formulated strategy
is compared with several other common trading strategies to
evaluate its financial performance.
B. Signal Decomposition
In signal decomposition, the VMD is utilized. VMD is a
newly developed adaptive and nonrecursive signal decompo-
sition method proposed in [35]. Overall, it generalizes the
Wiener filter into a number of adaptive bands by decom-
posing a multicomponented input signal f (t) into a set of
quasi-orthogonal discrete band-limited subseries modes u k ,
while reproducing the input signal f (t) [36]. The modes
obtained from the decomposition are mainly centered tightly
around the central frequency wk [37]. In essence, VMD is
a variational optimization problem which seeks to minimize
Fig. 1. Framework of the proposed hybrid VMD-ICSS-BiGRU approach. the bandwidth of each mode, which can be expressed in the
following form:
A. Overview of the Proposed Design   2
    

To enhance the prediction accuracy for the gold futures min ∂t δ(t) + j ⊗ u k (t) e− j wk t 
{u k },{wk }  πt 
market, a hybrid deep learning neural networks model that k 2
combines signal decomposition technique, structural break- 
s.t. u k = f (t) (1)
point detection, and recurrent neural network is proposed.
k
The proposed approach is completely data-driven and requires where u k denotes the k subseries modes and wk represents
fewer assumptions, which makes it more consistent with their respective central frequencies, f (t) is the input signal,
reality. Furthermore, to further verify the practicability of the δ(t) represents the Dirac delta function and ⊗ denotes the
prediction model, trading strategies are formulated based on convolution operator. The optimization process for each mode
the prediction results and the trading results are compared with is conducted through the following steps: [38]
other commonly used strategies. The proposed approach is
1) Transform each subsignal mode into uni-sided frequency
developed as illustrated in Fig. 1.
spectrum through the Hilbert transform.
Step 1 (Signal Decomposition):
2) Using an exponential function tuned to the correspond-
An efficient signal decomposition technique, the VMD,
ing estimated center frequency, the frequency spectrum
is utilized to decompose the original time series x t
of each subseries mode is altered to narrow frequency
(t = 1, 2, . . . , T ) into K simple and stationary subseries that
baseband.
allows the model to capture the inner patterns of the data
3) The bandwidth of each subsignal mode is calculated
Step 2 (Structural Break Detection):
by conducting the H 1 Gaussian smoothness on the
A structural break detection algorithm, the iterated cumu-
demodulated signal.
lated sums of squares (ICSS), is utilized to identify N struc-
tural breakpoints in the time series, which represent significant In order to calculate the optimal solution of the constrained
changes in market conditions. The corresponding N +1 market optimization problem in (1), a quadratic penalty function
conditions are depicted using a binary dummy variable. and Lagrangian multipliers can be introduced to address the
Step 3 (Feature Selection): constraint. Thus, the augmented Lagrangian modified equation
Several feature components, including the original gold can be obtained as shown in (2)
futures price information, its technical indicators, the detected ({u k }, {wk }, λ)
structural breakpoints, the decomposed subseries, and several  
   2

=α ∂t δ(t) + j ⊗ u k (t) e− j wk t 
external markets information are selected as feature inputs for  πt 
the prediction model. k 2
 2
Step 4 (Price Prediction):    
 
The BiGRU is employed as the forecasting tool to generate + f (t) − u k (t) + λ(t), f (t) − u k (t) (2)
 
the prediction result for the gold futures price. Furthermore, k 2 k

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1360
where α denotes the quadratic penalty function and λ repre-
sents the Lagrangian multipliers.
The solution of (2) is obtained using the alternative direction
method of multipliers (ADMMs) [39]. The estimated subsignal
modes are shifted from the time domain to the frequency
domain. The subsignal modes u k and central frequency wk
are calculated in (3) and (4) as follows:
fˆ(w) − û i (w) + λ̂(w)
i =k
k (w) =
û n+1
1 + 2α(w − wk )2
∞ 2
0 ω|û k (w)| dw
wkn+1 = ∞ 2
. (4)
0 |û k (w)| dw
C. Structural Break Detection
In order to identify the structural breaks in the time series
that represents significant changes in market conditions, the
ICSS algorithm is employed. Proposed in [40], the ICSS
algorithm is a common approach used for detecting structural
breaks in time series. The algorithm assumes that a time series
has a stationary variance until whenever a breakpoint occurs.
It will then have another stationary variance until the next
breakpoint. Through the iterative process, all the breakpoints
in the time series can be identified.
Let Ck = kt=1 t2 , k = 1, 2, . . . , T be the cumulated sum
of square residuals, where {t } denotes the residual series with
mean of 0 and variance of σt2 . The statistic Dk can then be
defined as follows in (5):
Ck k
Dk = − , k = 1, 2, . . . , T, D0 = DT = 0.
CT T
If there are no structural breaks in the sample period, there
are no changes in variance and Dk will remain around 0.
However, if structure breaks occur, Dk will shift away from 0.
Specifically, if the shift exceeds the critical value, a breakpoint
is identified. In this article, the critical value is set to the value
at the 5% significance level defined in [40].
D. Feature Selection
The features used as the model input include two sets of
components. The first set contains four categories of features
derived from the gold futures market - original price informa-
tion, technical indicators, the decomposed closing price sub-
series and market breakpoints. The original price information,
which consists of the daily log-returns and the 5-day return
volatility, directly reflects the market price movements. The
log-return is the logarithmic rate of return for a particular
commodity. It is calculated as follows in (6):
 
pt
rt = ln (6)
pt−1
where pt denotes the closing price at time t and pt−1 denotes
the closing price at time t − 1.
In addition, the volatility of returns measures the disper-
sion of the average return of an commodity over a given
period. Typically, the greater the volatility, the higher the
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IEEE TRANSACTIONS ON COMPUTATIONAL SOCIAL SYSTEMS, VOL. 8, NO. 6, DECEMBER 2021
investment risk. In this article, the standard deviation is used
as the measure of volatility. It is calculated as follows in (7):

n
t=1 (rt − r¯t )
2
vt = (7)
n
where rt denotes the log-return of time t, r¯t is the average
log-return over the calculated period, n is the number of days
used in the calculation, and v t represents the n day volatility
2
(3) of the asset.
In financial analytics, both fundamental analysis and tech-
nical analysis are widely utilized for developing financial
time-series models [41]. On the one hand, fundamental analy-
sis evaluates market movements based on influential factors
such as economic conditions, company earnings, liabilities,
assets, and management. On the other hand, technical analysis
utilizes the past performance of financial prices to make
inferences about future movements. By using technical indi-
cators, it removes the subjectivity in economic factors. In this
study, several technical indicators are selected to describe the
movement trend in the gold futures market, which includes the
SMA, exponential moving average (EMA), relative strength
index (RSI), and Williams % R. For each indicator, time
intervals from 3 to 20 days are used.
The SMA is the arithmetic MA of the asset price over a
given period of time. There are many trading strategies widely
used involving SMAs. Typically, multiple SMAs with different
time intervals can be used together to determine the trend
directions of the market. For example, if the asset price is
above the SMA line, it triggers a “Buy” signal that indicates
the market is displaying an upward trend. On the contrary,
(5) if the asset price is below the SMA line, it triggers a “Sell”
signal that indicates the market is showing a downward trend.
The calculation for SMA is shown below in (8)

a+n
pt
SMA = (8)
n
t=a+1
where pt denotes the asset price at time t and n represents the
number of periods in the calculation.
Different from the SMA, the EMA is a weighted MA that
assigns more weighting to recent price data. In comparison to
the SMA, the EMA is more responsive to recent price changes.
It is calculated as shown in (9)
2
EMAt = ( pt − EMAt−1 ) ∗ + EMAt−1 (9)
n+1
where EMAt−1 denotes the EMA of the previous period,
(2/n + 1) is the weighting multiplier applied to the latest price
data.
The RSI is an oscillator indicator that shows the momentum
of the asset. The RSI oscillates between 0 and 100, which
indicates the “overbought” and “oversold” conditions of the
asset. Typically, the asset is considered “overbought” if the
RSI value is above 70 and “oversold” if the RSI value is below
30. The equation for RSI is as follows in (10):
 
100
RSI = 100 − . (10)
1 + average Gain
average Loss
LI et al.: NEW HYBRID VMD-ICSS-BiGRU APPROACH FOR GOLD FUTURES PRICE FORECASTING
The Williams % R is another momentum oscillating indi-
cator for the asset prices. The value of the indicator oscillates
between −100 and 0. Similar to RSI, if the value is above −20,
the asset is considered “overbought”. If the value is below
−80, the asset is considered “oversold”. The calculation for
Williams % R is shown below
Max(high) − pt
Williams%R = . (11)
Max(high) − Min(low)
The VMD is used as the signal decomposition technique
to decompose the original complex and nonstationary time
series into K simple and stationary subseries. This allows
the model to capture the inner patterns of the data. As stated
by [15], since the effect duration of different factors on the
gold price varies, the original gold price time series can
be decomposed into components of different frequencies to
reflect the different price movement patterns in the market.
These subseries can effectively capture the effects of different
factors on the movement of the gold futures market. Thus,
decomposing the original gold price time series into different
subseries can yield meaningful information that allows the
model to learn the movement patterns of the market in different
time intervals.
In addition, the ICSS algorithm proposed by [40] is utilized
to identify the structural breakpoints in the gold futures price
log-returns. The breakpoints represent changes in the market
return volatility, which is used as a signal to represent shifts
in market conditions. Therefore, a binary dummy variable,
market condition, is incorporated to represent the state of
the market. The breakpoints are continuously reidentified after
each sample. If a breakpoint does not occur, the value of the
binary variable remains unchanged. If a breakpoint is detected,
the value of the binary variable is changed, indicating a shift
in market conditions. The iterative process is repeated until
all samples are used. Overall, N structural breakpoints are
detected, which translates to N + 1 market condition values.
The first set of features are derived from the gold futures
market. However, only incorporating its own market infor-
mation may be insufficient to fully reflect its price move-
ments. As shown by [42], gold futures prices are found
to be correlated with that of other major financial markets.
Therefore, movements in the correlated markets may have
significant impacts on the fluctuations in gold futures prices.
Thus, information from several external financial markets
are incorporated to reflect the hidden relationships. Previous
studies have investigated the relationship between gold and
other external variables. Batten et al. [12] conclude that the
price of oil is a major macroeconomic factor that influences
the gold price fluctuations. In addition, [13] also discover that
the price of oil has significant explanatory power on gold price
fluctuation behaviors, showing a high correlation between the
two markets. In addition to the price of oil, studies such as
[11] show a negative causal relationship between gold prices
and the US dollar. Further, spot gold is often used as an asset
to hedge against price fluctuations in gold futures. As shown
by [43], there exist a significant relationship between the price
volatility of spot gold and gold futures. Based on the above
evidence, four major financial market indices are selected to
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1361
represent the external market influences. The two major crude
oil indices in the world, The LCO and the WTI Crude (WTI),
are used to represent the oil market. The US DXY, which
is a measure of the US dollar value relative to other foreign
currencies including the Euro, Japanese Yen, British Pound,
Canadian Dollar, Swedish Krona, and Swiss Franc, is used
as a comprehensive indicator for the USD foreign exchange
market. Finally, the XAUUSD is used to reflect the fluctuations
in the spot gold market.
The variables incorporated in previous studies mainly con-
sists of the observable market information from the external
markets. However, this representation may be inadequate to
fully reflect their hidden correlations with the gold futures
market. Similar to gold futures, the price fluctuations in the
external markets also have different time patterns. Therefore,
in this study, the external market prices are decomposed into
different subseries, respectively, to extract the inner patterns.
Since the fluctuations of gold prices are affected by factors
of different frequencies, the correlation between different
subseries of gold futures market and external markets may
vary significantly. For example, the higher frequency gold
futures subseries and higher frequency WTI crude subseries
may have different correlations from higher frequency gold
futures subseries and lower frequency WTI oil subseries.
Therefore, in comparison to previous studies a novel correla-
tion representation is proposed in which the overall correlation
between the markets is further decomposed into multiple
correlations between the subseries of markets. This correlation
decomposition enables the model to further extract the hidden
relationship between the gold futures market and the selected
external markets. In addition, due to the complex nature of
the market, the correlations between different market subseries
do not remain constant over time. Therefore, a 5-day sliding
Pearson correlation coefficient is selected as the dynamic rela-
tionship measure. In this study, the sliding Pearson correlation
coefficient is calculated between each decomposed subseries
of gold futures market and that of external markets. Each
decomposed external markets subseries is multiplied by its
corresponding correlation coefficient to generate the input
features for the external market component.
E. Price Prediction
Unlike traditional neural networks that are only able to
use mono-directional time sequential historical information
in the iterative direction, a bidirectional neural networks is
introduced into the price prediction step. As concluded by [34],
time series data contains a two-way sequential relationship as
the current state is not only the reflection of historical informa-
tion but also the basis of the future state. Thereby, bidirectional
neural networks are more consistent with reality. In this article,
a BiGRU approach is adopted to extracted information from
the forward direction and backward direction.
The bidirectional recurrent neural network (BiRNN) is
proposed by [44]. Different from traditional RNNs that utilize
only mono-directional historical information, BiRNN utilizes
historical information from both directions so that it obtains
information from past and future states. In addition, in this
article, the traditional RNN cells are replaced by gated current
1362 IEEE TRANSACTIONS ON COMPUTATIONAL SOCIAL SYSTEMS, VOL. 8, NO. 6, DECEMBER 2021
Fig. 2. Detailed architecture of the Bidirectional GRU structure.
unit (GRU) cells proposed in [45]. Unlike regular RNN cells,
GRU cells are capable of modeling long-range dependencies
accurately [46]. As illustrated in Fig. 2, a GRU cell consists
of a reset gate, rt and an update gate, z t . The reset gate,
rt , controls the amount of information discarded from the
previous state. The greater the value of rt , the more infor-
mation is discarded from the previous state. The update date,
z t , decides the amount of input information updated in the
cell. The greater the value of z t , the more input information is
updated in the cell. Their calculations are shown in (12)–(16)
rt = σ (Wr · [h t−1 , x t ])
z t = σ (Wz · [h t−1 , x t ])
h̃ t = tanh(Wh̃ t · [rt ∗ h t−1 , x t ])
h t = (1 − z t ) ∗ h t−1 + z t ∗ h̃ t
yt = σ (Wo · h t )
where x t denotes the input information at time t. h t represents
the hidden state at time t. h̃ t is the candidate activation vector.
σ is the Leaky-ReLu activation function. Wr , Wz and Wh̃ t are
weighted matrices and * is the element-wise multiplication.
The bidirectional GRU (BiGRU) model has two hidden
layers, where one layer is used to process information in
the forward direction and the other layer is used to process
information in the backward direction. Finally, the two hidden
layers are connected to one output layer. By utilizing the
two-layer structure, BiGRU can make more accurate predic-
tions by extracting information from past and future states.
F. Data Labeling
In order to further evaluate the prediction accuracy and the
financial performance of the proposed approach, all data points
are labeled as “Hold,” “Buy,” or “Sell” points based on the
daily closing price of the asset. In this study, the labeling
strategy marks the “Buy” and “Sell” points in a pairwise form.
If the daily closing price at time t +1 is higher than that at time
t, time t is labeled as “Buy” and time t +1 is labeled as “Sell.”
The labeling algorithm then proceeds to time t +2. Otherwise,
time t is labeled as “Hold” and the algorithm proceeds to
time t + 1.
G. Algorithmic Trading
The prediction result generated from the model are used to
formulate the trading strategies according to the data labeling
rules outlined in the previous step.
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After automatically labeling, the trades are conducted
according to the generated strategies. In our approach, gold
futures are bought, sold, or held based on the predicted labels.
If the predicted label is “Buy,” gold futures are bought at that
timestamp with all the available capital. If the predicted label
is “Sell” and the asset has been previously bought, it is all
sold at that timestamp. If the predicted label is “Hold,” no
transactions are conducted. In this simulation, the initial capital
is set to $1000 000.
To compare the performance of the proposed approach,
the trading strategies formulated by other single and hybrid
artificial intelligence (AI) models, as well as three traditional
strategies—Buy & Hold (B&H), SMA, and RSI are selected
as benchmarks. In the Buy & Hold strategy, gold futures are
bought at the beginning of each testing interval and sold at the
end of each testing interval with no transactions conducted
in between. In the SMA strategy, the 20-day SMA value is
calculated for each trading day. If the closing price of the
corresponding day is higher than its 20-day SMA value, the
data point is labeled as a “Sell” point. On the contrary, if the
closing price of the day is lower than its 20-day SMA value,
the data point is labeled as a “Buy” point. Otherwise, it is
labeled as a “Hold” point. Similarly, in the RSI strategy, the
(12) 14-day RSI value is calculated for each trading day. According
to the convention, if the corresponding RSI value of the trading
(13)
day is greater than 70, the asset is considered “overbought,”
(14) and it is labeled as a “Sell” point. If the RSI value is less than
(15) 30, the asset is considered “oversold” and it is labeled as a
(16) “Buy” point. Otherwise, it is labeled as a “Hold” point. For
each testing interval, the annualized return of each strategy is
computed as shown in (17)
  1 
Total Capital number of years
AR = − 1 ∗ 100. (17)
Initial Capital
III. E MPIRICAL S TUDY
To test the effectiveness of the proposed model, the selected
features from the gold futures market and external markets are
used as inputs for the proposed VMD-ICSS-GRU approach.
The evaluation procedure consists of two parts. First, the
prediction performance of the model is compared with that
of other forecasting models (including single and hybrid AI
models). Second, the trading strategies generated from the
model predictions are utilized to conduct financial trading on
the gold futures market. Its financial performance is compared
with that of several traditional and AI trading strategies.
A. Data Description
This article aims to develop accurate forecasts and build
effective trading strategies for the gold futures market, the
Gold Futures (GC) index, based on past market movement
patterns, technical indicators, decomposed subseries, struc-
tural changes in the market state, and correlations with
other financial markets. The original data are obtained from
Yahoo Finance (www.finance.yahoo.com). The raw dataset
contains the daily price data of 1 month-forward gold
futures from January 10, 2000, to January 25, 2019, which
LI et al.: NEW HYBRID VMD-ICSS-BiGRU APPROACH FOR GOLD FUTURES PRICE FORECASTING 1363

Fig. 3. Trend of the normalized 1 month-forward the Commodity Exchange

(COMEX) gold futures daily closing price.

Fig. 5. Detailed model network architecture.

Five major feature components, which include the original

prices, its technical indicators, the decomposed subseries inner
factors, the detected market breakpoints, and external market
information are used as the model input variables. The pro-
posed model takes the input in a 5-day window length of t − 4
to t, passes the information through two stacked bidirectional
GRU layers and one fully connected layer. It then forecasts
Fig. 4. 5-day volatility of 1 month-forward COMEX gold futures calculated the daily closing price of gold futures at timestamp t + n.
based on the daily logarithmic returns of the asset. 2) The prediction outputs are used to label the data points
in the testing set and generate trading strategies. The trades
includes 4981 data points. Each data point contains the daily are then conducted based on the generated strategies and the
opening price, closing price, maximum price, and minimum trading performance of the model is compared with several
price. The closing price is used as the prediction target and traditional strategies.
the basis for formulating trading strategies during algorithmic
C. Evaluation Criteria
trading. The overview of its tendency and its 5-day volatility
are shown in Figs. 3 and 4, respectively. In order to test To evaluate the prediction performance of the model, the
the prediction effectiveness, a rolling testing interval approach mean squared error (MSE) is selected as the loss function due
is adopted where 55% of the total data are used as testing to its robustness. The smaller the MSE, the better the predictor
points. As suggested in [47], the testing data are divided estimation quality. It is calculated as shown in (19)
into 5 subintervals. The first interval is from July 9, 2008, 1 
N
2
to January 5, 2010. The second interval is from January 6, MSE = ( X̂ (t) − X (t)) . (19)
2010, to October 10, 2011. The third interval is from October N t=1
11, 2011, to November 5, 2013. The fourth interval is from To measure the fitting performance of the proposed model,
November 6, 2013, to April 12, 2016. The last interval is from root mean squared error (RMSE), mean average percentage
April 13, 2016, to January 25, 2019. error (MAPE), and mean absolute error (MAE) are selected.
In order to eliminate the effects of different dimensions and They are calculated using (20)–(22)
obtain better model performance, the data is normalized in the  
1   X̂ t − X t 
N
range of 0 to 1 as shown in (18) MAPE =   (20)
x − min x N t=1  X t 

x= (18) 
max x − min x 
1  N
RMSE = 
2
where x denotes the normalized value of the data. x represents ( X̂ t − X t ) (21)
N t=1
the true value of the data, max x and min x are the maximum
and minimum value of the data, respectively. 1   
N
MAE = X̂ t − X t . (22)
B. Prediction Model Architecture N t=1
The architecture of the proposed hybrid model is depicted in A good prediction model not only requires good fitting
Fig. 5. The experiment procedure consists of two steps. 1) The performance, it also must have high predictive power to be
daily closing price is used as the target variable to measure practical in the real financial world. Therefore, directional
the prediction performance of the model. It is decomposed accuracy (DA) is introduced to evaluate the predictability of
into different simple and stationary subseries using VMD. the model. On the one hand, if the model predicts the asset

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1364 IEEE TRANSACTIONS ON COMPUTATIONAL SOCIAL SYSTEMS, VOL. 8, NO. 6, DECEMBER 2021

Fig. 6. Subplot to the left plots the decomposed subseries of the gold futures daily closing prices. The subplot to the right plots the detected structural break
points for one of the data points in the sample.

closing price will increase (decrease) the next day and the
actual price increases (decreases), then the model prediction is
successful. On the other hand, if the model predicts the asset
closing price will increase (decrease) the next day and the
actual price decreases (increases), then the model prediction
fails. The greater the DA, the higher the predictive ability of
the model. The DA is calculated as shown in (23) and (24)
 condition, is used to represent the state of the market. The
1, if (X t − X t−1 ) · ( X̂ t − X t−1 ) ≥ 0
Zt = (23)
0, if (X t − X t−1 ) · ( X̂ t − X t−1 ) < 0
N condition variable remain unchanged. If a break point occurs,
Zt
DA = i=1
(24)
N shift in market states.
where X̄ t is the mean of the actual value, N is the total number
of data points, X̂ t and X t denote the predicted value and the
actual value at time t, respectively.
D. Empirical Results
1) Prediction Performance: In order to avoid the use of
future information in the forecasting process and obtain more
realistic performance, we only use VMD to decompose the
training dataset. It is important to note that since we adopt
a rolling testing approach, we perform VMD decomposition
each time after we incorporate the data from the previous
testing interval. For illustration purposes, we display the over-
all decomposition result for the entire data in left subplot of
Fig. 6. As suggested by [47], we decompose the closing price
of the asset into 11 subsignal modes of various frequencies.
As shown in Fig. 6, the modes range from low frequency
to high frequency, with M1 being the lowest frequency and
M11 being the highest frequency. Each subseries represents
a hidden oscillatory factor in the time series. The lowest
frequency mode, M1, is able to capture the long-term relative
long-term trend of the data. The higher frequency modes,
M2-M11, depict the relative short-term price fluctuations in the
data, which means they can effectively capture the sensitive
short-term noises in the market.
The right subplot of Fig. 6 illustrates the structural break-
points detected by the model for one of the data points in
the sample. The breakpoints, marked by red lines, represent
changes in the market return volatility and indicate shifts
in market conditions. Therefore, a dummy variable, market
breakpoints are reidentified continuously following each train-
ing day. If a breakpoint does not occur, the value of the market
a different market condition value is assigned, indicating a
After decomposing the original complex, nonstationary
signals and identifying the shifts in market conditions, the
selected input variables are fed into the stacked BiGRU model
to forecast the one-day, two-day, and three-day ahead closing
price for gold futures. Since the closing price of gold futures
has close relationships with its prices in the near-past, a 5-day
successive training window is used. For example, in the case of
one-day ahead forecasting, the training data of previous 5 days
x t−4 , x t−3 , x t−2 , x t−1 , x t , where x t includes the original inputs,
technical indicators, the decomposed subseries inner factors,
the identified market conditions and external market informa-
tion of day t, are inputted into the BiGRU model to forecast
the target variable yt+1 , which is the closing price at time t +1.
To evaluate the prediction performance of the model, we con-
duct both vertical and horizontal performance comparisons
with several benchmark models. For vertical comparisons, the
single BiGRU model and the hybrid VMD-BiGRU model are
selected. Specifically, the BiGRU model excludes the decom-
posed intrinsic modes as its input. The VMD-BiGRU model
includes all the components such as the technical indicators,
original gold prices, and external market information except
for the identified market breakpoints as its input. For horizontal
comparison, we construct several benchmark models using

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LI et al.: NEW HYBRID VMD-ICSS-BiGRU APPROACH FOR GOLD FUTURES PRICE FORECASTING 1365

TABLE I
V ERTICAL F ORECASTING P ERFORMANCE OF D IFFERENT M ODELS

TABLE II
V ERTICAL F ORECASTING P ERFORMANCE BY I NTERVAL

state-of-the-art techniques such as support vector regression
(SVR), linear regression (LR), ANNs, as well as LSTM.
To ensure consistencies between models, we utilize both the
decomposed time-series and the identified market breakpoints
as inputs for all these models. The vertical performance
comparison results are shown in Tables I and II. The horizontal
performance results are shown in Table III. It is important to
note that all of the normalized prediction results are evaluated
without the process of unnormalization.
In terms of 1-Step ahead forecasting, the RMSE, MAPE,
and MAE of the single BiGRU model are 0.0124, 0.0158,
and 0.0113, respectively. However, the DA value of the model
overall and across all intervals (See Table I) are all below 60%,
which means that the model is incapable of predicting the
market trends. In comparison, when VMD decomposition is
introduced, the hybrid VMD-BiGRU is able to reduce the fore-
casting errors and improve the fitting performance. In addition,
the DA of the model increased to 0.7958, which indicates
that the model is capable of predicting the marketing trend.
Consequently, this suggests that introducing signal decompo-
sition into the BiGRU model can significantly improve the pre-
dictive power of the model. Through VMD decomposition, the
extracted inner factors as well as the decomposed correlations
between subseries of different markets contain information that
is closely related to the fluctuation of the gold futures market.
Furthermore, when ICSS is introduced to identify changes
in market conditions, the proposed approach yielded supe-
rior results. In comparison to the decomposition-only
VMD-BiGRU model, the proposed approach is able to fur-
ther reduce the forecasting errors across all intervals, which
indicates a stronger fitting performance. In addition, the DA
further improved to 0.8351, which shows that the proposed
approach is not only acceptable in mathematical calculations
but also practical in real-world applications.

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1366 IEEE TRANSACTIONS ON COMPUTATIONAL SOCIAL SYSTEMS, VOL. 8, NO. 6, DECEMBER 2021

TABLE III
H ORIZONTAL F ORECASTING P ERFORMANCE OF D IFFERENT M ODELS

TABLE IV
A NNUALIZED R ETURNS OF D IFFERENT S TRATEGIES

Examining the results for 2-Step ahead and 3-Step
ahead forecasting, the proposed approach is able to consis-
tently reduce the forecasting error and improve the fitting
performance effectively. Therefore, incorporating the signal
decomposition technique and structural breakpoint detection to
identify changes in market conditions can effectively capture
the movement trends in the gold futures market. In addition,
the results suggest that the bidirectional neural networks struc-
ture is capable of learning the two-way sequential relationship
that exist in the time-series data.
As evidence for further verification, as shown in Table III,
when our proposed approach is compared against benchmark
models constructed with state-of-art techniques, it is also able
to effectively reduce the forecasting errors and improve the
DA of the forecast. Therefore all of these results suggest that
our proposed approach is able to effectively capture the market
patterns and improve the forecasting performance.
2) Financial Performance: In order to evaluate the finan-
cial performance of the proposed strategy, the hybrid
VMD-BiGRU model, Buy & Hold, 20-day SMA, and 14-day
RSI are used as benchmark to compare the annualized returns
across different intervals. Since the single BiGRU model
is incapable of predicting market trends, it is not used to
conduct financial trading. The financial performance of all
the strategies across different intervals is shown in Table IV,
where the strategy with the highest annualized returns in each
interval is labeled in bold. Overall, the annualized return of
the proposed VMD-ICSS-BiGRU approach across the whole
testing set is 20.41%. In comparison, the VMD-BiGRU model,
Buy & Hold, and RSI obtained returns of 12.48%, 2.95%,
and 3.73%, respectively. Meanwhile, the SMA experienced
a loss of 7.82%. Examining the results, it is clear that the
proposed VMD-ICSS-BiGRU approach displays an advantage
over other strategies by obtaining the highest returns in each
interval. One thing worth noting is that while all other strate-
gies suffered losses in one or multiple intervals, the strategy
generated by the proposed approach is able to obtain stable
positive annualized returns across all the testing intervals.
As stated by [28], it is particularly challenging to consistently
beat the market over a long period of time. In this study,
the testing set spans across 11 years from 2008 to 2019.
During this time, the market has exhibited different fluctuation
patterns. Unlike other trading strategies, when the gold futures
market condition is pessimistic or highly volatile, the proposed
model is able to avoid losses and consistently generate positive
profits from the market. During several periods in which other
trading strategies performed poorly with negative returns, the
proposed approach displayed superior performances by gen-
erating significant positive profits. Therefore, it is particularly
effective and stable when the market condition is pessimistic or
highly volatile. Furthermore, the proposed approach is able to
consistently generate positive returns across all testing periods
regardless of the market condition. Overall, the proposed
model displayed high levels of stability and in particular,
demonstrated strong ability to reduce the negative effects
of suboptimal market conditions. Thus, the model is able
to effectively lower the investment risk in the gold futures,
thus providing practical significance for investors and financial
institutions.
3) Financial Performance on Spot Gold: To further verify
the robustness of the proposed VMD-ICSS-BiGRU approach,
we apply it to the data from the spot gold market. Similar to the
gold futures data, the spot gold sample consists of 4981 data
points from January 10, 2000, to January 25, 2019. Likewise,

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LI et al.: NEW HYBRID VMD-ICSS-BiGRU APPROACH FOR GOLD FUTURES PRICE FORECASTING
Fig. 7. Change in available capital for different strategies conducting financial
transactions for the spot gold market. The testing period is from January 10,
2000 to January 25, 2019. The currency for all available capital is in USD.
the features for gold futures include original inputs, its tech-
nical indicators, decomposed subseries inner factors, market
breakpoints, and external market information. In this case, the
subseries inner factors are extracted from the daily closing
price of spot gold. External market information used are WTI
Crude, LCO, and gold futures. The initial capital is set to
$1000 000. In this simulation, 85% of the data are used as the
training set and the rest are used as the testing set. Therefore,
the testing set includes 747 instances from April 13, 2016,
to January 25, 2019. The model structure remains unchanged
from the gold futures simulation
The financial performance of the proposed
VMD-ICSS-BiGRU approach is compared with that of
the other four strategies - VMD-BiGRU, Buy & Hold,
SMA, and RSI. In the testing interval, the proposed
approach obtained an annualized return of 17.07%, while the
VMD-BiGRU, Buy & Hold, SMA and RSI obtained returns
of 12.30%, 1.52%, −4.64%, and 5.84%. In comparison, the
average annualized strategy of the proposed approach not
only obtained positive profits over the testing period, and
the profits generated are also significantly higher than those
obtained by the other strategies. Fig. 7 further illustrates
the performance comparison between our strategy and other
strategies.
IV. C ONCLUSION
In this study, by integrating BiGRU deep learning model,
VMD, and iterated cumulative sum of squares algorithm,
a hybrid deep learning approach named VMD-ICSS-BiGRU
is proposed to predict the price movements in the gold
futures market. First, variational mode decomposition (VMD)
is used as the signal decomposition technique to decompose
the original complex and nonstationary time series into simple
and stationary subseries. The subseries are inputted into the
prediction model as part of the input features, which allows the
model to capture the inner patterns of the data. Second, several
technical indicators are included as model inputs. Third, ICSSs
algorithm is utilized to identify the structural breakpoints in
the market. Our empirical results indicate that the proposed
VMD-ICSS-BiGRU approach displays superior prediction per-
formance results in comparison to other single and hybrid deep
learning models. It is able to consistently generate positive
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1367
returns regardless of the market conditions. In particular,
it demonstrates strong ability to reduce the negative effects of
deteriorating and unclear market conditions. Furthermore, the
model’s consistent performance on a different dataset indicates
that it is generalizable. Thus, it provides practical significance
and guidance for investors and policymakers.
One of the limitations of our study is that the strategy pro-
posed is a long-only strategy. However, in reality, short posi-
tion is also an important part of market strategies. Currently,
the proposed strategy has relatively long hold times as the
model waits for buy and sell signals, therefore, including short
positions may generate more opportunities and increase profits
significantly. Thus, adopting a mixed long and short strategy
for the approach will be the direction of future works.
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Yuze Li is currently pursuing the master’s degree in
management science and engineering with the Acad-
emy of Mathematics and Systems Science, Chinese
Academy of Sciences, Beijing, China.
His research interests include economic modeling,
analysis, forecasting and game theory. He has pub-
lished in journals including Nature Communications,
European Journal of Operational Research, and
Energy Economics.
Shouyang Wang received the Ph.D. degree in oper-
ations research from the Institute of Systems Sci-
ence, Chinese Academy of Sciences, Beijing, China,
in 1986.
He is currently a Bairen Distinguished Professor
of management science with the Academy of Math-
ematics and Systems Science, Chinese Academy of
Sciences. He has received many research related
awards and honors. He has published 35 mono-
graphs and published more than 330 articles in
international academic journals. He is/was a Coed-
itor of 16 journals and a Guest Editor of special issues/volumes of more
than 15 journals. His research interests include decision analysis, risk man-
agement, economic analysis, and forecasting.
Yunjie Wei received the Ph.D. degree in manage-
ment science and engineering from the Academy of
Mathematics and Systems Science, Chinese Acad-
emy of Sciences, Beijing, China, in 2017, and the
Ph.D. degree in management science from the City
University of Hong Kong, Hong Kong, in 2018.
She is currently an Assistant Professor with the
Academy of Mathematics and Systems Science,
Chinese Academy of Sciences. She has published
over 20 articles in international academic journals.
Her research interests include economic modeling,
and analysis and forecasting.
Qing Zhu is a Professor of finance with the Interna-
tional Business School, Shaanxi Normal University,
Xi’an, China, and a Postdoctoral Researcher in data
science with the School of Management of Xi’an
Jiaotong University, Xi’an. His research interests are
big data and soft computing, machine learning, and
neural networks.