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Do currency exchange rates impact gold prices? New evidence from the ongoing COVID-19 period

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  • Tanin, Tauhidul Islam
  • Sarker, Ashutosh
  • Brooks, Robert

Abstract

We apply the nonlinear autoregressive distributed lag method to examine the relationships between seven leading currency exchange rates and gold prices using daily data from January 2017 to April 2021. The results reveal that in the short term, while negative United States dollar (USD) to United Kingdom pound, negative USD to Canadian dollar, negative USD to Japanese yen, negative USD to Danish krone, and positive USD to euro exchange rates increase gold prices, a lagged positive USD to euro and lagged positive USD to Danish krone exchange rates decrease gold prices. A test of the pre-pandemic normal period reveals that the uneven and unpredictable impacts of six exchange rates on gold prices are particularly due to COVID-19. We find efficiency in the gold market, in line with the market efficiency hypothesis and random walk theory. Our findings indicate that gold acts as a safe-haven asset for investors during COVID-19.

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  • Tanin, Tauhidul Islam & Sarker, Ashutosh & Brooks, Robert, 2021. "Do currency exchange rates impact gold prices? New evidence from the ongoing COVID-19 period," International Review of Financial Analysis, Elsevier, vol. 77(C).
    • Handle: RePEc:eee:finana:v:77:y:2021:i:c:s1057521921001988
    DOI: 10.1016/j.irfa.2021.101868
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    More about this item

    Keywords

    Exchange rates; Gold prices; COVID-19 pandemic; Uncertainty; Nonlinear ARDL (NARDL);
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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