The impact of monetary policy on gold price dynamics

Yanhui Zhu; Jingwen Fan; Jon Tucker

doi:10.1016/j.ribaf.2017.07.100

The impact of monetary policy on gold price dynamics

Yanhui Zhu, Jingwen Fan, Jon Tucker

Research output: Contribution to journal › Article

6 Citations (Scopus)

14 Downloads (Pure)

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	https://doi.org/10.1016/j.ribaf.2017.07.100
Publication status	Published - 1 Apr 2018
Externally published	Yes

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

Access to Document

10.1016/j.ribaf.2017.07.100

Post-PrintAccepted author manuscript, 1.31 MBLicence: CC BY-NC-ND

Fingerprint Dive into the research topics of 'The impact of monetary policy on gold price dynamics'. Together they form a unique fingerprint.

Cite this

@article{cc27334672e749dd9a87422d03ce3298,

title = "The impact of monetary policy on gold price dynamics",

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.",

keywords = "Bank of England independence, Central banks, Gold price, Hedging, Quantitative easing",

author = "Yanhui Zhu and Jingwen Fan and Jon Tucker",

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 {\circledC} 2017, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International http://creativecommons.org/licenses/by-nc-nd/4.0/",

year = "2018",

month = "4",

day = "1",

doi = "10.1016/j.ribaf.2017.07.100",

language = "English",

volume = "44",

pages = "319--331",

journal = "Research in International Business and Finance",

issn = "0275-5319",

publisher = "Elsevier",

}

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

AN - SCOPUS:85025461289

VL - 44

SP - 319

EP - 331

JO - Research in International Business and Finance

JF - Research in International Business and Finance

SN - 0275-5319

ER -