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The Relationship of the value of the Dollar, and the Prices of Gold and Oil: A Tale of Asset Risk

Author

Listed:
  • Myeong Hwan Kim

    (Indiana University-Purdue University Fort Wayne)

  • David A. Dilts

    (Indiana University-Purdue University Fort Wayne)

Abstract

This paper investigates the relationship between the value of the dollar and the prices of two commodities, gold and oil. Granger causality is used on monthly data from January of 1970 through July of 2008. The empirical results show that the hypothesis that there is no causal relation between the value of the dollar and the prices of gold and oil is not supported by the evidence. There are causal relations between each of the prices, and there is a negative relation between the value of the dollar and the price of each of the commodities, as predicted by standard economic theory. Also consistent with the predictions of classical economic theory is that there is a positive statistical association between the prices of gold and oil. The implication is that gold and oil represent safe havens from fluctuations in the value of the dollar.

Suggested Citation

  • Myeong Hwan Kim & David A. Dilts, 2011. "The Relationship of the value of the Dollar, and the Prices of Gold and Oil: A Tale of Asset Risk," Economics Bulletin, AccessEcon, vol. 31(2), pages 1151-1162.
    • Handle: RePEc:ebl:ecbull:eb-11-00098
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    Cited by:

    1. repec:eco:journ1:2014-03-02 is not listed on IDEAS
    2. Thai-Ha Le & Youngho Chang, 2011. "Oil and gold: correlation or causation?," Economics Bulletin, AccessEcon, vol. 31(3), pages 1-31.
    3. Li, Yang & Du, Qingfeng, 2024. "Oil price volatility and gold prices volatility asymmetric links with natural resources via financial market fluctuations: Implications for green recovery," Resources Policy, Elsevier, vol. 88(C).
    4. Reboredo, Juan C., 2013. "Is gold a safe haven or a hedge for the US dollar? Implications for risk management," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 2665-2676.
    5. Shahani, Rakesh & Paliwal, Riya, 2020. "An empirical analysis of the Co-movement of Crude, Gold, Rupee-Dollar Exchange rate and Nifty 50 Stock Index during Sub-prime and Coronavirus crisis periods," MPRA Paper 103568, University Library of Munich, Germany.
    6. Shahbaz, Muhammad & Balcilar, Mehmet & Abidin Ozdemir, Zeynel, 2017. "Does oil predict gold? A nonparametric causality-in-quantiles approach," Resources Policy, Elsevier, vol. 52(C), pages 257-265.
    7. Hatice Gaye Gencer & Zafer Musoglu, 2014. "Volatility Transmission and Spillovers among Gold, Bonds and Stocks: An Empirical Evidence from Turkey," International Journal of Economics and Financial Issues, Econjournals, vol. 4(4), pages 705-713.
    8. E.M. Afsal & Mohammad Imdadul Haque, 2016. "Market Interactions in Gold and Stock Markets: Evidences from Saudi Arabia," International Journal of Economics and Financial Issues, Econjournals, vol. 6(3), pages 1025-1034.
    9. Michele Patanè & Mattia Tedesco & Stefano Zedda, 2017. "Dynamic Relationship of Commodities prices and EUR/USD exchange rate trends in the recent past," Department of Economics University of Siena 759, Department of Economics, University of Siena.
    10. Joscha Beckmann & Robert Czudaj, 2013. "Oil and gold price dynamics in a multivariate cointegration framework," International Economics and Economic Policy, Springer, vol. 10(3), pages 453-468, September.
    11. Muhammad Aftab & Syed Zulfiqar Ali Shah & Izlin Ismail, 2019. "Does Gold Act as a Hedge or a Safe Haven against Equity and Currency in Asia?," Global Business Review, International Management Institute, vol. 20(1), pages 105-118, February.
    12. Mehmet Balcilar & Zeynel Abidin Ozdemir & Muhammad Shahbaz, 2019. "On the time‐varying links between oil and gold: New insights from the rolling and recursive rolling approaches," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 24(3), pages 1047-1065, July.
    13. Mishra, Aswini Kumar & Ghate, Kshitish & Renganathan, Jayashree & Kennet, Joushita J. & Rajderkar, Nilay Pradeep, 2022. "Rolling, recursive evolving and asymmetric causality between crude oil and gold prices: Evidence from an emerging market," Resources Policy, Elsevier, vol. 75(C).
    14. Reboredo, Juan C. & Rivera-Castro, Miguel A., 2014. "Gold and exchange rates: Downside risk and hedging at different investment horizons," International Review of Economics & Finance, Elsevier, vol. 34(C), pages 267-279.
    15. Wang, Xinya & Lucey, Brian & Huang, Shupei, 2022. "Can gold hedge against oil price movements: Evidence from GARCH-EVT wavelet modeling," Journal of Commodity Markets, Elsevier, vol. 27(C).
    16. İrfan Civcir & Uğur Akkoç, 2021. "Dynamic volatility linkages and hedging between commodities and sectoral stock returns in Turkey: Evidence from SVAR‐cDCC‐GARCH model," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(2), pages 1978-1992, April.
    17. Akkoc, Ugur & Civcir, Irfan, 2019. "Dynamic linkages between strategic commodities and stock market in Turkey: Evidence from SVAR-DCC-GARCH model," Resources Policy, Elsevier, vol. 62(C), pages 231-239.
    18. Shah, Adil Ahmad & Paul, Manas & Bhanja, Niyati & Dar, Arif Billah, 2021. "Dynamics of connectedness across crude oil, precious metals and exchange rate: Evidence from time and frequency domains," Resources Policy, Elsevier, vol. 73(C).
    19. Takashi Miyazaki & Shigeyuki Hamori, 2013. "Testing for causality between the gold return and stock market performance: evidence for ‘gold investment in case of emergency’," Applied Financial Economics, Taylor & Francis Journals, vol. 23(1), pages 27-40, January.
    20. Kanjilal, Kakali & Ghosh, Sajal, 2017. "Dynamics of crude oil and gold price post 2008 global financial crisis – New evidence from threshold vector error-correction model," Resources Policy, Elsevier, vol. 52(C), pages 358-365.
    21. Tiwari, Aviral Kumar & Sahadudheen, I., 2015. "Understanding the nexus between oil and gold," Resources Policy, Elsevier, vol. 46(P2), pages 85-91.
    22. Khan, Asad Ul Islam & Shahbaz, Muhammad & Napari, Ayuba, 2023. "Subsample stability, change detection and dynamics of oil and metal markets: A recursive approach," Resources Policy, Elsevier, vol. 83(C).

    More about this item

    Keywords

    Dollar; Gold; Oil; Exchange Rates; Commodity Prices; Granger Causality;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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