The impact of monetary policy on gold price dynamics

Yanhui Zhu, Jingwen Fan, Jon Tucker

Research output: Contribution to journalArticlepeer-review

13 Citations (Scopus)
24 Downloads (Pure)


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 languageEnglish
Pages (from-to)319-331
Number of pages13
JournalResearch in International Business and Finance
Early online date8 Jul 2017
Publication statusPublished - 1 Apr 2018
Externally publishedYes

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


  • Bank of England independence
  • Central banks
  • Gold price
  • Hedging
  • Quantitative easing

ASJC Scopus subject areas

  • Business, Management and Accounting (miscellaneous)
  • Finance


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