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The gold price in times of crisis

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  • Białkowski, Jędrzej
  • Bohl, Martin T.
  • Stephan, Patrick M.
  • Wisniewski, Tomasz P.

Abstract

Motivated by the recent gold price boom, this paper examines whether an asset bubble exists in the gold market. We approximate gold's fundamental value using several econometric models and apply a Markov regime-switching Augmented Dickey–Fuller (ADF) test which has substantial power for detecting explosive behavior. Although our results are sensitive to the specification of the fundamental value, we show that a model accounting for the current European sovereign debt crisis accurately tracks the gold price observed in the market. We also note that inflation in a general commodity price index and gold ETF demand have a potential to explain the price trajectory.

Suggested Citation

  • Białkowski, Jędrzej & Bohl, Martin T. & Stephan, Patrick M. & Wisniewski, Tomasz P., 2015. "The gold price in times of crisis," International Review of Financial Analysis, Elsevier, vol. 41(C), pages 329-339.
    • Handle: RePEc:eee:finana:v:41:y:2015:i:c:p:329-339
    DOI: 10.1016/j.irfa.2014.07.001
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    More about this item

    Keywords

    Gold price; Speculative bubble; Markov regime-switching ADF test; Global financial crisis; European sovereign debt crisis;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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