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Threshold effects in the relationships between USD and gold futures by panel smooth transition approach

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  • Wo-Chiang Lee
  • Hui-Na Lin

Abstract

Using a Panel Smooth Transition Regression (PSTR) model, this study sets crude oil as threshold variable, and Volatility Index (VIX) and Morgan Stanley Capital International (MSCI) for Emerging Market Index (MSCI-E) as control variables to investigate the nonlinear dynamic relationship between USD/yen and gold futures in the Commodity Exchange, Inc. (COMEX). Empirical results show that the transition function is a logistic type. In region 1, the price of crude oil is low. The sign of VIX is positive. USD/yen exerts negative impact on gold market due to the way that gold market functions as a factor of hedge against portfolio and geopolitical risk. In region 2, the price of crude oil is higher (the demand for crude oil may be stronger). The economy is prosperous; VIX turns low; USD/yen increases. Investors have more money from other financial markets to buy gold, thus, causing gold futures price to rise. Besides, gold is both a hedge and a safe haven for developing countries but not for emerging countries; therefore, the relationships between gold and MSCI-E are positive in both regions.

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  • Wo-Chiang Lee & Hui-Na Lin, 2012. "Threshold effects in the relationships between USD and gold futures by panel smooth transition approach," Applied Economics Letters, Taylor & Francis Journals, vol. 19(11), pages 1065-1070, July.
    • Handle: RePEc:taf:apeclt:v:19:y:2012:i:11:p:1065-1070
    DOI: 10.1080/13504851.2011.613747
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    1. Raza, Naveed & Jawad Hussain Shahzad, Syed & Tiwari, Aviral Kumar & Shahbaz, Muhammad, 2016. "Asymmetric impact of gold, oil prices and their volatilities on stock prices of emerging markets," Resources Policy, Elsevier, vol. 49(C), pages 290-301.
    2. Jain, Anshul & Biswal, P.C., 2016. "Dynamic linkages among oil price, gold price, exchange rate, and stock market in India," Resources Policy, Elsevier, vol. 49(C), pages 179-185.
    3. Naveed Raza & Syed Jawad Hussain Shahzad & Muhammad Shahbaz & Aviral kumar Tiwari, 2017. "Modeling the nexus between oil shocks, inflation and commodity prices: Do Asymmetries really matter?," Economics Bulletin, AccessEcon, vol. 37(4), pages 2374-2383.
    4. Tanin, Tauhidul Islam & Sarker, Ashutosh & Brooks, Robert & Do, Hung Xuan, 2022. "Does oil impact gold during COVID-19 and three other recent crises?," Energy Economics, Elsevier, vol. 108(C).
    5. Bisharat Hussain Chang & Omer Faruk Derindag & Nuri Hacievliyagil & Mehmet Canakci, 2022. "Exchange rate response to economic policy uncertainty: evidence beyond asymmetry," Palgrave Communications, Palgrave Macmillan, vol. 9(1), pages 1-14, December.
    6. Bahmani-Oskooee, Mohsen & Ghodsi, Seyed Hesam & Hadzic, Muris, 2020. "Asymmetric causality between stock returns and usual hedges: An industry-level analysis," The Journal of Economic Asymmetries, Elsevier, vol. 21(C).
    7. 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.

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