Abstract
Ever since the collapse of the Bretton-Woods system, gold has retained its function as an important monetary commodity (Baur and Lucey, 2010), and continues to provide important inflation forecasting information to monetary policy setters (Tkacz, 2007). However, Capie et al. (2005) highlight the instability of gold price dynamics through time, attributing it to unpredictable political attitudes and events. In this paper, we investigate gold price dynamics under different inflation regimes and stock market conditions using UK and US index-linked Treasury bond data. We show that gold lost its role as an inflation hedge after May 1997 in the UK, and after 2003 did not act as an inflation hedge in the US, supporting the argument that gold is an inflation hedge only in periods of high inflation and inflation expectations. Further, we show that gold retained its safe haven status throughout the sample period in both countries, but it did not act as a stock market hedge in the UK except during the 2008-9 global financial crisis. Finally, we conduct an event-study analysis of the impact of QE announcements from four leading central banks on the gold price in US dollars. While the QE announcements of the US Federal Reserve and the European Central Bank exerted a strong and weak influence on gold, respectively, the Bank of England and the Bank of Japan's QE announcements had no discernible impact on the gold price.
| Original language | English |
|---|---|
| Pages (from-to) | 319-331 |
| Number of pages | 13 |
| Journal | Research in International Business and Finance |
| Volume | 44 |
| Early online date | 8 Jul 2017 |
| DOIs | |
| Publication status | Published - 1 Apr 2018 |
| Externally published | Yes |
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Bibliographical note
NOTICE: this is the author’s version of a work that was accepted for publication in Research in International Business and Finance. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Research in International Business and Finance, Vol 44 (2018) DOI: 10.1016/j.ribaf.2017.07.100© 2017, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International http://creativecommons.org/licenses/by-nc-nd/4.0/
Keywords
- Bank of England independence
- Central banks
- Gold price
- Hedging
- Quantitative easing
ASJC Scopus subject areas
- Business, Management and Accounting (miscellaneous)
- Finance
Cite this
The impact of monetary policy on gold price dynamics. / Zhu, Yanhui; Fan, Jingwen; Tucker, Jon.
In: Research in International Business and Finance, Vol. 44, 01.04.2018, p. 319-331.Research output: Contribution to journal › Article
}
TY - JOUR
T1 - The impact of monetary policy on gold price dynamics
AU - Zhu, Yanhui
AU - Fan, Jingwen
AU - Tucker, Jon
N1 - NOTICE: this is the author’s version of a work that was accepted for publication in Research in International Business and Finance. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Research in International Business and Finance, Vol 44 (2018) DOI: 10.1016/j.ribaf.2017.07.100 © 2017, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International http://creativecommons.org/licenses/by-nc-nd/4.0/
PY - 2018/4/1
Y1 - 2018/4/1
N2 - Ever since the collapse of the Bretton-Woods system, gold has retained its function as an important monetary commodity (Baur and Lucey, 2010), and continues to provide important inflation forecasting information to monetary policy setters (Tkacz, 2007). However, Capie et al. (2005) highlight the instability of gold price dynamics through time, attributing it to unpredictable political attitudes and events. In this paper, we investigate gold price dynamics under different inflation regimes and stock market conditions using UK and US index-linked Treasury bond data. We show that gold lost its role as an inflation hedge after May 1997 in the UK, and after 2003 did not act as an inflation hedge in the US, supporting the argument that gold is an inflation hedge only in periods of high inflation and inflation expectations. Further, we show that gold retained its safe haven status throughout the sample period in both countries, but it did not act as a stock market hedge in the UK except during the 2008-9 global financial crisis. Finally, we conduct an event-study analysis of the impact of QE announcements from four leading central banks on the gold price in US dollars. While the QE announcements of the US Federal Reserve and the European Central Bank exerted a strong and weak influence on gold, respectively, the Bank of England and the Bank of Japan's QE announcements had no discernible impact on the gold price.
AB - Ever since the collapse of the Bretton-Woods system, gold has retained its function as an important monetary commodity (Baur and Lucey, 2010), and continues to provide important inflation forecasting information to monetary policy setters (Tkacz, 2007). However, Capie et al. (2005) highlight the instability of gold price dynamics through time, attributing it to unpredictable political attitudes and events. In this paper, we investigate gold price dynamics under different inflation regimes and stock market conditions using UK and US index-linked Treasury bond data. We show that gold lost its role as an inflation hedge after May 1997 in the UK, and after 2003 did not act as an inflation hedge in the US, supporting the argument that gold is an inflation hedge only in periods of high inflation and inflation expectations. Further, we show that gold retained its safe haven status throughout the sample period in both countries, but it did not act as a stock market hedge in the UK except during the 2008-9 global financial crisis. Finally, we conduct an event-study analysis of the impact of QE announcements from four leading central banks on the gold price in US dollars. While the QE announcements of the US Federal Reserve and the European Central Bank exerted a strong and weak influence on gold, respectively, the Bank of England and the Bank of Japan's QE announcements had no discernible impact on the gold price.
KW - Bank of England independence
KW - Central banks
KW - Gold price
KW - Hedging
KW - Quantitative easing
UR - http://www.scopus.com/inward/record.url?scp=85025461289&partnerID=8YFLogxK
U2 - 10.1016/j.ribaf.2017.07.100
DO - 10.1016/j.ribaf.2017.07.100
M3 - Article
VL - 44
SP - 319
EP - 331
JO - Research in International Business and Finance
JF - Research in International Business and Finance
SN - 0275-5319
ER -