Economic and Financial Determinants of Gold ETF Price Volatility on the U.S. Futures Market (COMEX)
Keywords:
ETFs; Commodity Exchange; US Commodities; Gold Futures; Quantitative Analysis
Abstract
The price of gold ETFs on the COMEX market in the USA is influenced by both domestic and international economic and political factors. In our study, we focus on domestic economic variables as key drivers of gold ETF prices, using the Newey-West estimator to assess their impact, particularly in the presence of significant autocorrelation. Our analysis of domestic determinants over the past 15 years revealed noteworthy insights. CPI, the US dollar exchange rate, interest rates, and crude oil prices negatively affect gold prices. However, the 30-year fixed mortgage rate and the U.S. Economic Policy Uncertainty index had a positive impact. Gold remains a safe haven in times of economic uncertainty, but our model displayed some weaknesses with strong positive autocorrelation and heteroscedasticity in residuals. To address these issues, we constructed an alternative model, focusing on the most recent five years. Since 2017, we've observed a shift where inflation and interest rates no longer significantly affect gold prices. Recent interest rate hikes and high inflation had minimal impact, especially during stock market declines. Gold does not appear to act as a hedge against bear markets as it did during the Global Financial Crisis; instead, the US dollar may fulfill this role. Given the unprecedented economic disruptions caused by the Covid-19 pandemic, further research is needed to explore the effects of domestic financial and economic KPIs on gold prices and their interconnections and spillover effects.
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References
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41. Baur, D. G. and McDermott, T. K. J. (2010) Is gold a safe haven? International evidence. Journal of Banking & Finance, 34(8), pp. 1886-1898.
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43. Zhou, X. and Zhu, H. (2018) Does GDP growth matter for gold prices? Evidence from China. Resources Policy, 59, pp. 543-550.
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48. Bordo, M. D. and Schwartz, A. J. (1994) The Changing Relationship Between Gold and the Money Supply. World Gold Council.
49. Demiralay, S. and Golitsis, P. (2021). On the dynamic equicorrelations in cryptocurrency market. The Quarterly Review of Economics and Finance, 80, pp. 524-533.
50. Baker, S. R., Bloom, N. and Davis, S. J. (2016) Measuring economic policy uncertainty. The quarterly journal of economics, 131(4), pp. 1593-1636.
51. Simpson, M. J., Svendsen, A. and Chan, P. L. (2007) Gold, Platinum, Silver. Demand and Supply in the International Finance Market: An Empirical Analysis.
52. Newey, W.K., and West, K.D. (1987) A simple, positive semi-definite, heteroskedasticity and autocorrelation consistent covariance matrix. Econometrica, 55(3), pp. 703-708.
53. Wooldridge, J.M. (2002) Econometric analysis of cross section and panel data. MIT press.
54. Golitsis, P., Bellos, S., Fassas, A.P. and Demiralay, S. (2021). The Spillover Effect of Euribor on Southeastern European Economies: A Global VAR Approach. Journal of East-West Business, 27(1), pp. 57-91.
55. Golitsis, P., Khudoykulov, K. and Palanov, S. (2022b). Determinants of non-performing loans in North Macedonia. Cogent Business & Management, 9(1), 2140488.
56. Bantimaroudi, P., Golitsis, P. and Mitreva, M. (2023). An empirical study of the relationship between Foreign Direct Investments, Remittances, Political Stability and Economic Growth in Greece. Journal of Economics, 8(1), pp. 1-19.
57. Abdellatif, D., El Moutaouakil, K. and Satori, K. (2018) Clustering and Jarque-Bera normality test to face recognition. Procedia Computer Science, p. 127, pp. 246-255.
58. Bellos, S.K. and Golitsis, P. (2023). The Nexus Between Financial and Investment Developments and State Capacity. The Case of G-20. Journal of Government and Economics, 100081.
59. Mitsas, S., Golitsis, P. and Khudoykulov, K. (2022). Investigating the impact of geopolitical risks on the commodity futures. Cogent Economics & Finance, 10(1).
60. Kim, J. H. (2019) Multicollinearity and misleading statistical results. Korean journal of anesthesiology, 72(6), pp. 558-569.
2. World Gold Council (2021) Major Global Trading Hubs. World Gold Council. Retrieved from: https://www.gold.org/gold-market-structure/global-gold-market#:~:text=The%20three%20most%20important%20gold,OTC%20and%20exchange%2Dtraded 3. Golitsis, P., Gkasis, P. and Bellos, S. K. (2022a) Dynamic spillovers and linkages between gold, crude oil, S&P 500, and other economic and financial variables. Evidence from the USA. The North American Journal of Economics and Finance, 63, 101785. 4. Sipkova, H. and Sipko, J. (2014) What Are the Real Drivers of Gold Prices?. International Journal of Business and Social Science, 5 (8). 5. Jaffe, J. F. (1989a) Gold and gold stocks as investments for institutional portfolios. Financial Analysts Journal, 45(2), pp. 53-56. 6. Al-Ameer, M., Hammad, W., Ismail, A. and Hamdan, A. (2018). The relationship of gold price with the stock market: The case of Frankfurt Stock Exchange. International Journal of Energy Economics and Policy, 8(5), 357. 7. Choong, P. S., Kwoo, P. Y., Piong, C. K. and Wong, W. X. (2012a) Determinants of gold price: using simple and multiple linear regression (Doctoral dissertation, UTAR).
8. Liu, F. (2021a) Explore the Influencing Factors of Gold Price-Empirical Analysis Based on Eviews. Available at SSRN 3968976.
9. Isa, M. A. M., Latif, R. A., Nasrul, F., Zaharum, Z. and Ariff, M. K. (2020a) Relational study between macroeconomic variables and gold price: latest Malaysian Evidence, p. 20. 10. Hood, M. and Malik, F. (2013a) Is gold the best hedge and a safe haven under changing stock market volatility?. Review of Financial Economics, 22(2), pp. 47-52.
11. Levin, E. J., Montagnoli, A. and Wright, R. E. (2006a) Short-run and long-run determinants of the price of gold, p. 2.
12. Ayele, A. W., Gabreyohannes, E. and Tesfay, Y. Y. (2017a) Macroeconomic determinants of volatility for the gold price in Ethiopia: the application of GARCH and EWMA volatility models. Global Business Review, 18(2), pp. 308-326. 13. Madhushan, R. M. K., Rathnayaka, R. M. A. C., Sandaruwan, T. M. D. M., Maduranga, A. D. and Gunarathne, A. V. C. H. (2021a) Relationship between gold price and determinants of gold price in Sri Lanka.
14. Bin Sukri, M. K. A. and Mohd Zain, N. H. (2015a) The relationship between selected macroeconomic factors and gold price in malaysia. International Journal of Business, Economics & Law, p. 8(1).
15. Hashim, S. L., Ramlan, H., Razali, N. H. and Nordin, N. Z. (2017) Macroeconomic variables affecting the volatility of gold price. Journal of Global Business and Social Entrepreneurship (GBSE), 3(5), pp. 97-106.
16. Nadeem, W., Zakaria, M. and Kayani, F. (2014a) Impact of macroeconomic factors upon gold prices in Pakistan. Pakistan Journal of Social Sciences (PJSS), 34, pp. 383-395.
17. Erdoğdu, A. (2017a) The most significant factors influencing the price of gold: An empirical analysis of the US market. Economics, 5(5), 399-406.
18. Seemuang, A. (2012) US macroeconomic determinants for movement of gold fix. p. 9.
19. Dadhich, M. (2017) An analysis of volatility of macro-economic variables on gold price. Pacific Business Review International, 9(12), pp. 21-25.
20. Neethling, R. and Meyer, D. (2021) An assessment of the classical relationship of price fluctuations between the gold market and the US Dollar. Acta Universitatis Danubius. OEconomica, p. 17(4).
21. Singh, N. P. and Sharma, S. (2021a) Cointegration and Causality among Gold, Crude Oil, US Dollar, and Stock Market across Global Financial Crisis.
22. Jain, A. and Biswal, P. C. (2016a) Dynamic linkages among oil price, gold price, exchange rate, and stock market in India. Resources Policy, 49, pp. 179-185.
23. Samah, H., Wajdi, M. and Regaïeg, R. (2018). Dynamic linkages among Bitcoin, gold prices and exchange rates of US Dollar in JPY, GBP and CNY: DCC EGARCH approach. Journal of Academic Research in Economics, 10(2), 239-247. 24. Liya, A., Qin, Q., Kamran, H. W., Sawangchai, A., Wisetsri, W. and Raza, M. (2021a) How macroeconomic indicators influence gold price management. Business Process Management Journal.
25. Bilal, A. R., Talib, N. B. A., Haq, I. U., Khan, M. N. A. A. and Naveed, M. (2013) How gold prices correspond to stock index: a comparative analysis of Karachi stock exchange and Bombay stock exchange. World Applied Sciences Journal, 21(4), pp. 485-491.
26. Gencer, H. G. and Musoglu, Z. (2014a) Volatility transmission and spillovers among gold, bonds and stocks: Empirical evidence from turkey. International Journal of Economics and Financial Issues, 4(4), pp. 705-713.
27. Shaikh, S. and Sharma, S. (2020) Predicting Gold prices: Using Crude Oil, Currency movement & Stock Market. 28. Wang, Y. S. and Chueh, Y. L. (2013) Dynamic transmission effects between the interest rate, the US dollar, and gold and crude oil prices. Economic Modelling, 30, pp. 792-798.
29. Abdullah, A. and Abu Bakar, M. J. (2015a) The application of gold price, interest rates and inflation expectations in capital markets. International Journal of Economics and Finance, 7(2), PP. 293-302.
30. Ibrahim, S. N., Kamaruddin, N. I. and Hasan, R. (2014) The determinants of gold prices in Malaysia. Journal of Advanced Management Science, 2(1).
31. Apergis, N., Cooray, A., Khraief, N. and Apergis, I. (2019) Do gold prices respond to real interest rates? Evidence from the Bayesian Markov Switching VECM model. Journal of international financial markets, institutions and Money, 60, pp. 134-148.
32. Šimáková, J. (2011) Analysis of the relationship between oil and gold prices. Journal of finance, 51(1), pp. 651-662.
33. Aloui, C. and Jammazi, R. (2015) Oil and gold price volatility: Evidence from Japan. Pacific-Basin Finance Journal, 34, pp. 286-295.
34. Bouri, E., Lahiani, A. and Nguyen, D. K. (2013) The dynamic linkages between crude oil and gold futures prices: A multivariate GARCH approach. Journal of International Financial Markets, Institutions and Money, 23, pp. 85-97.
35. Altarturi, B. H., Alshammari, A. A., Saiti, B. and Erol, T. (2018) A three-way analysis of the relationship between the USD value and the prices of oil and gold: A wavelet analysis. Aims Energy.
36. Nirmala, S. and Deepthy, K. (2015) An analysis of the relationship between gold and crude oil prices. International Journal of Applied Research, 1(13), pp. 156-159.
37. Tuysuz, S. (2013) Conditional correlations between stock index, investment grade yield, high yield, and commodities (gold and oil) during stable and crisis periods. International Journal of Economics and Finance, 5(9), p. 28.
38. Sheikh, U. A., Asad, M., Ahmed, Z. and Mukhtar, U. (2020) Asymmetrical relationship between oil prices, gold prices, exchange rate, and stock prices during global financial crisis 2008: Evidence from Pakistan. Cogent Economics & Finance, 8(1), 1757802.
39. Ciner, C., Gurdgiev, C. and Lucey, B. M. (2013) Hedges and safe havens: An examination of stocks, bonds, gold, oil and exchange rates. International Review of Financial Analysis, 29, pp. 202-211.
40. Thaver, R. L. and Lopez, J. (2016). Unemployment as a determinant of gold prices: Empirical evidence. The International Journal of Business and Finance Research, 10(10), 43-52.
41. Baur, D. G. and McDermott, T. K. J. (2010) Is gold a safe haven? International evidence. Journal of Banking & Finance, 34(8), pp. 1886-1898.
42. Batten, J. A. Ciner, C., and Lucey, B. M. (2017) Which precious metals spill over on which, when and why? Some evidence. Finance Research Letters, 23, pp. 296-303.
43. Zhou, X. and Zhu, H. (2018) Does GDP growth matter for gold prices? Evidence from China. Resources Policy, 59, pp. 543-550.
44. Yoon, S.-M. and Kim, D. H. (2017) The relationship between economic growth and gold prices: Empirical evidence from Korea. Resources Policy, p. 54, pp. 142-149.
45. Balcilar, M., Gupta, R. and Jooste, C. (2016) The relationship between gold and silver prices: a historical analysis. Studies in Economics and Finance, 33(1), pp. 27-42.
46. Smith, J. A. and Johnson, R. S. (2018) The Relationship Between Silver and Gold Prices. Journal of Financial Economics, 45(3), pp. 321-336.
47. Brown, K. M. and Davis, M. W. (2020) A Comprehensive Analysis of the Relationship Between Silver and Gold Prices. Journal of Investing, 25(1), pp. 87-102.
48. Bordo, M. D. and Schwartz, A. J. (1994) The Changing Relationship Between Gold and the Money Supply. World Gold Council.
49. Demiralay, S. and Golitsis, P. (2021). On the dynamic equicorrelations in cryptocurrency market. The Quarterly Review of Economics and Finance, 80, pp. 524-533.
50. Baker, S. R., Bloom, N. and Davis, S. J. (2016) Measuring economic policy uncertainty. The quarterly journal of economics, 131(4), pp. 1593-1636.
51. Simpson, M. J., Svendsen, A. and Chan, P. L. (2007) Gold, Platinum, Silver. Demand and Supply in the International Finance Market: An Empirical Analysis.
52. Newey, W.K., and West, K.D. (1987) A simple, positive semi-definite, heteroskedasticity and autocorrelation consistent covariance matrix. Econometrica, 55(3), pp. 703-708.
53. Wooldridge, J.M. (2002) Econometric analysis of cross section and panel data. MIT press.
54. Golitsis, P., Bellos, S., Fassas, A.P. and Demiralay, S. (2021). The Spillover Effect of Euribor on Southeastern European Economies: A Global VAR Approach. Journal of East-West Business, 27(1), pp. 57-91.
55. Golitsis, P., Khudoykulov, K. and Palanov, S. (2022b). Determinants of non-performing loans in North Macedonia. Cogent Business & Management, 9(1), 2140488.
56. Bantimaroudi, P., Golitsis, P. and Mitreva, M. (2023). An empirical study of the relationship between Foreign Direct Investments, Remittances, Political Stability and Economic Growth in Greece. Journal of Economics, 8(1), pp. 1-19.
57. Abdellatif, D., El Moutaouakil, K. and Satori, K. (2018) Clustering and Jarque-Bera normality test to face recognition. Procedia Computer Science, p. 127, pp. 246-255.
58. Bellos, S.K. and Golitsis, P. (2023). The Nexus Between Financial and Investment Developments and State Capacity. The Case of G-20. Journal of Government and Economics, 100081.
59. Mitsas, S., Golitsis, P. and Khudoykulov, K. (2022). Investigating the impact of geopolitical risks on the commodity futures. Cogent Economics & Finance, 10(1).
60. Kim, J. H. (2019) Multicollinearity and misleading statistical results. Korean journal of anesthesiology, 72(6), pp. 558-569.
Published
2023-11-23
Section
Banking and Finance
