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Gold and oil prices: stable or unstable long-run relationship

Author

Listed:
  • Charbel Bassil

    (Notre Dame University - Louaize)

  • Hassan Hamadi

    (Notre Dame University - Louaize)

  • Patrick Mardini

    (University of Balamand, Balamand Al Kurah)

Abstract

This paper investigates the presence of a long-run relationship between the daily prices of oil and gold over the period 1986-2015. The presence of such a long-run relationship implies that the two markets are jointly inefficient; and that one price can be used as a predictor for the other price. We also test the presence of one or multiple structural breaks in the long-run relation. The presence of structural breaks suggests that the magnitude and the sign of the relationship between oil and gold prices may be different across different regimes. Our methodology is based on endogenous structural break tests and tests of cointegration with one or multiple breaks. Our results show that indeed this relation has changed over time and is subject to two or five regime changes. However, we do not find evidence for cointegration with or without breaks. The absence of a long-run equilibrium between oil and gold prices suggest that oil prices are biased predictor of gold prices. Hence, past information of oil prices is not relevant in forecasting gold prices.

Suggested Citation

  • Charbel Bassil & Hassan Hamadi & Patrick Mardini, 2019. "Gold and oil prices: stable or unstable long-run relationship," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 43(1), pages 57-72, January.
    • Handle: RePEc:spr:jecfin:v:43:y:2019:i:1:d:10.1007_s12197-018-9429-y
    DOI: 10.1007/s12197-018-9429-y
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    3. Hung, Ngo Thai & Vo, Xuan Vinh, 2021. "Directional spillover effects and time-frequency nexus between oil, gold and stock markets: Evidence from pre and during COVID-19 outbreak," International Review of Financial Analysis, Elsevier, vol. 76(C).

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    More about this item

    Keywords

    Oil prices; Gold prices; Structural breaks; Cointegration; Unit root;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • Q35 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Hydrocarbon Resources
    • G1 - Financial Economics - - General Financial Markets

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