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The crude oil market and the gold market: Evidence for cointegration, causality and price discovery

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  • Zhang, Yue-Jun
  • Wei, Yi-Ming

Abstract

Given that the gold market and the crude oil market are the main representatives of the large commodity markets, it is of crucial practical significance to analyze their cointegration relationship and causality, and investigate their respective contribution, from the perspective of price discovery, to the common price trend so as to interpret the dynamics of the whole large commodity market and forecast the fluctuation of crude oil and gold prices. Empirical analysis indicates that, first, there are consistent trends between the crude oil price and the gold price with significant positive correlation coefficient 0.9295 during the sampling period, from January of 2000 to March of 2008. Second, there can be seen a long-term equilibrium between the two markets, and the crude oil price change linearly Granger causes the volatility of gold price, but not vice versa; moreover, the two market prices do not face a significant nonlinear Granger causality, which overall suggests their fairly direct interactive mechanism. Finally, with regard to the common effective price between the two markets, the contribution of the crude oil price seems larger than that of the gold price, whether with the permanent transitory (PT) model (86.50% versus 13.50%) or the information share (IS) model (50.28% versus 49.72%), which implies that the influence of crude oil on global economic development proves more far-reaching and extensive, and its role in the large commodity markets has attracted more attention in recent years.

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Bibliographic Info

Article provided by Elsevier in its journal Resources Policy.

Volume (Year): 35 (2010)
Issue (Month): 3 (September)
Pages: 168-177

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Handle: RePEc:eee:jrpoli:v:35:y:2010:i:3:p:168-177

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Web page: http://www.elsevier.com/locate/inca/30467

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Keywords: Crude oil market Gold market Granger causality Permanent transitory model Information Share model Price discovery;

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Citations

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Cited by:
  1. Shu-Mei Chiang & Chi-Tai Lin & Chien-Ming Huang, 2013. "The Relationships Among Stocks, Bonds and Gold: Safe Haven, Hedge or Neither?," Diversity, Technology, and Innovation for Operational Competitiveness: Proceedings of the 2013 International Conference on Technology Innovation and Industrial Management, ToKnowPress.
  2. Le, Thai-Ha & Chang, Youngho, 2011. "Oil and gold: correlation or causation?," MPRA Paper 31795, University Library of Munich, Germany.
  3. Souček, Michael, 2013. "Crude oil, equity and gold futures open interest co-movements," Energy Economics, Elsevier, vol. 40(C), pages 306-315.
  4. Zhang, Yue-Jun & Wang, Zi-Yi, 2013. "Investigating the price discovery and risk transfer functions in the crude oil and gasoline futures markets: Some empirical evidence," Applied Energy, Elsevier, vol. 104(C), pages 220-228.
  5. Jozef Barunik & Evzen Kocenda & Lukas Vacha, 2013. "Gold, Oil, and Stocks," Papers 1308.0210, arXiv.org, revised Mar 2014.
  6. Joscha Beckmann & Robert Czudaj, 2013. "Oil and gold price dynamics in a multivariate cointegration framework," International Economics and Economic Policy, Springer, vol. 10(3), pages 453-468, September.
  7. Philippe Charlot & Vêlayoudom Marimoutou, 2014. "On the relationship between the prices of oil and the precious metals: Revisiting with a multivariate regime-switching decision tree," Working Papers hal-00980125, HAL.
  8. Mensi, Walid & Beljid, Makram & Boubaker, Adel & Managi, Shunsuke, 2013. "Correlations and volatility spillovers across commodity and stock markets: Linking energies, food, and gold," Economic Modelling, Elsevier, vol. 32(C), pages 15-22.
  9. Tiwari, Aviral Kumar & Dar, Arif Billah & Bhanja, Niyati, 2013. "Oil price and exchange rates: A wavelet based analysis for India," Economic Modelling, Elsevier, vol. 31(C), pages 414-422.
  10. Reboredo, Juan C., 2013. "Is gold a hedge or safe haven against oil price movements?," Resources Policy, Elsevier, vol. 38(2), pages 130-137.
  11. Natanelov, Valeri & Alam, Mohammad Jahangir & McKenzie, Andrew M. & Van Huylenbroeck, Guido, 2011. "Is There Co-Movement of Agricultural Commodities Futures Prices and Crude Oil?," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114626, European Association of Agricultural Economists.
  12. Zied Ftiti & Aviral Tiwari & Ibrahim Fatnassi, 2014. "Oil price and macroeconomy in India - An evolutionary cospectral coherence approach," Working Papers 2014-068, Department of Research, Ipag Business School.
  13. Benhmad, François, 2012. "Modeling nonlinear Granger causality between the oil price and U.S. dollar: A wavelet based approach," Economic Modelling, Elsevier, vol. 29(4), pages 1505-1514.
  14. Thai-Ha Le & Youngho Chang, 2012. "Oil Price Shocks and Gold Returns," Economie Internationale, CEPII research center, issue 131, pages 71-104.
  15. Natanelov, Valeri & Alam, Mohammad J. & McKenzie, Andrew M. & Van Huylenbroeck, Guido, 2011. "Is there co-movement of agricultural commodities futures prices and crude oil?," Energy Policy, Elsevier, vol. 39(9), pages 4971-4984, September.

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