Statistical Investigation into the Accelerating Cyclical Dynamics Among Gold, Dollar and U.S. Interest Rate
Based on time-series decomposition, HP filter and cycle locating procedure, the paper extracts the concrete cycle information from gold, US$ exchange rate, and US interest rate time series, on all four durations of the past 30 years. (In this paper the US$ exchange rate is reflected by U.S. Dollar Index, and the interest rate refers to the US$ interest rate.) It shows that the cycle length has shortened and a more sensitive interaction among the three variables appeared since 2008 financial crisis. Further, application of VAR model indicates not only autoregressive relationship among the three variables, but also gold price to be the leading indicator, with 1-month ahead of the dollar exchange rate and 2-months ahead of the interest rate. This significant counter-cyclical pattern may be suggestive of government’s reserve portfolio allocation, especially when facing the uncertainty of the economy and the underlying inflation expectation.
KeywordsCounter-cyclical pattern Cross correlation Gold price HP filter VAR
This work was partially supported by Shanghai University of Finance and Economics through Project 211 Phase III and Shanghai Leading Academic Discipline Project, Project Number: B803.
- Aritgas JC (2010) Linking global money supply to gold and to future inflation. Technical report, World Gold Council, Feb 2010Google Scholar
- Capie F, Mills TC, Wood G (2004) Gold as a hedge against the US dollar. Technical report, World Gold Council, Sept 2004Google Scholar
- Cashin P, McDermott CJ (2002) The long-run behavior of commodity prices: small trends and big variability. IMF Staff Pap 49(2):175–199Google Scholar
- Deaton A, Miller R (1996) International commodity prices, macroeconomic performance and politics in sub-Saharan Africa. J Afr Econ 5:99–191Google Scholar
- Dempster N (2008) What does a US recession imply for the gold price? Technical report, World Gold Council, Apr 2008Google Scholar
- Dempster N, Milling-Stanley G (2010) The importance of gold in reserve asset management. Technical report, World Gold Council, June 2010Google Scholar
- Gulati IS, Mody A (1982) International gold price movements, 1972–1982. Econ Polit Wkly 17(46/47):1861–1870Google Scholar
- Levin EJ, Wright RE (2006) Short-run and long-run determinants of the price of gold. In: World Gold Council, June 2006Google Scholar