The Long-Run Relationship between Precious Metal Prices and the Business Cycle

This study examines the long-run relationships between major precious metal prices over the last forty years. Using a vector error correction model, we find that weekly futures log prices of gold and silver, and gold and platinum appear to be cointegrated. The results show that the cointegrating relationships between precious metal prices are not stable over time with significant shifts in the price relations around business cycle peaks and during recessions. Our results indicate that the long-run relationships between precious metal prices are strongly influenced by economic conditions. These findings should contribute to the growing literature on linkages between macroeconomic fundamentals and the exact nature of the price relationships across different precious metals.

[1]  Linkages Among Precious Metals Commodity Futures Prices: Evidence from Tokyo , 2010 .

[2]  Christian Pierdzioch,et al.  Are Precious Metals a Hedge Against Exchange-Rate Movements? An Empirical Exploration Using Bayesian Additive Regression Trees , 2016 .

[3]  R. Lucas.  ASSET PRICES IN AN EXCHANGE ECONOMY , 1978 .

[4]  B. Lucey,et al.  The evolving relationship between gold and silver 1978–2002: evidence from a dynamic cointegration analysis: a note , 2005 .

[5]  E. Fama,et al.  Business Cycles and the Behavior of Metals Prices , 1988 .

[6]  Francis X. Diebold,et al.  Real-Time Measurement of Business Conditions , 2007 .

[7]  Jeffrey A. Frankel,et al.  Expectations and Commodity Price Dynamics: The Overshooting Model , 1986 .

[8]  Clive W. J. Granger,et al.  Unit Root Tests and Asymmetric Adjustment with an Example Using the Term Structure of Interest Rates , 1998 .

[9]  C. Granger,et al.  Co-integration and error correction: representation, estimation and testing , 1987 .

[10]  Y. Tsuchiya.  Linkages among commodity futures prices in the recent financial crisis: An application of cointegration tests with a structural break , 2015 .

[11]  W. Enders,et al.  Cointegration and Threshold Adjustment , 1998 .

[12]  R. Lombra,et al.  Gold and platinum: Toward solving the price puzzle , 2009 .

[13]  Christian Pierdzioch,et al.  The international business cycle and gold-price fluctuations , 2014 .

[14]  R. Lombra,et al.  Nonneutral short-run effects of derivatives on gold prices , 2008 .

[15]  Mahmoud Wahab,et al.  The gold‐silver spread: Integration, cointegration, predictability, and ex‐ante arbitrage , 1994 .

[16]  Clive W. J. Granger,et al.  Investigating the Relationship between Gold and Silver Prices , 1998 .

[17]  Hiro Y. Toda,et al.  Statistical inference in vector autoregressions with possibly integrated processes , 1995 .

[18]  B. Mcdonald,et al.  Predicting Stock Returns in an Efficient Market , 1990 .

[19]  D. Baur,et al.  The long-run relationship of gold and silver and the influence of bubbles and financial crises , 2013 .

[20]  Christian Pierdzioch,et al.  Fluctuations of the real exchange rate, real interest rates, and the dynamics of the price of gold in a small open economy , 2015 .

[21]  B. Lucey,et al.  Institute for International Integration Studies the Macroeconomic Determinants of Volatility in Precious Metals Markets the Macroeconomics Determinants of Volatility in Precious Metals Markets the Macroeconomic Determinants of Volatility in Precious Metals Markets the Macroeconomic Determinants of V , 2022 .

[22]  Christian Pierdzioch,et al.  Cointegration of the prices of gold and silver: RALS-based evidence , 2015 .

[23]  Julien Chevallier,et al.  Cross‐Commodity Linkages , 2013 .

[24]  Mark P. Taylor,et al.  Periodically collapsing stock price bubbles: a robust test , 1998 .

[25]  Bruce E. Hansen,et al.  Residual-based tests for cointegration in models with regime shifts , 1996 .

[26]  K. Chan,et al.  Consistency and limiting distribution of the least squares estimator of a threshold autoregressive model , 1993 .

[27]  Cetin Ciner.  On the long run relationship between gold and silver prices A note , 2001 .