The Nexus Between Oil and Gold Prices During the COVID-19 Pandemic

Oil prices play a major role in most countries’ sustainable economic development. The fluctuation in oil prices significantly affects the economies of both developed and developing countries that depend heavily on oil imports. In uncertain times such as COVID-19, both governments and individual investors consider gold as a safe investment option. Using daily data, we empirically investigate the impact of COVID-19 on oil and gold prices. Our results reveal that the number of COVID-19 cases and deaths play a significant role in influencing the prices of oil and gold. In the long run, the impact on oil prices is “U” shaped while that on gold prices is “inverted U” shaped. In contrast to the pre–COVID-19 period, oil and gold prices both positively and significantly impacted each other during COVID-19, and the uncertainty during COVID-19 has a significant negative impact on both prices. During COVID-19, both economic uncertainty and world exchange rate increased the prices of oil and gold while the impact of volatility is the opposite. The above findings will also have practical implications for monetary policy with respect to inflation targeting. As the rise in oil price impacts heavily on the cost of production of goods and services for oil-importing economies, this would result in increased inflation. With no end to the COVID-19 pandemic at the time of writing, our findings will help government policymakers to devise appropriate policies to achieve sustainable development of their economies and investors to design their optimum portfolios.