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Fear sentiments and gold price: testing causality in-mean and in-variance

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  • Mahmod Qadan
  • Joseph Yagil

Abstract

This study investigates the causal relationship between the Volatility Index (VIX), as an indicator of fear sentiment, and the price of gold futures. We apply tests of causality in-mean and in-variance to recent data about US gold futures and find bidirectional causality in-mean and in-variance patterns between both variables. We also observe a significant lagged causality in-mean, implying that changes in the VIX drive the returns of gold contracts but not vice versa. While prior studies explain gold price movements through macroeconomic variables and events, this study expands our understanding of how psychological sentiments (risk aversion) move the gold price.

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  • Mahmod Qadan & Joseph Yagil, 2012. "Fear sentiments and gold price: testing causality in-mean and in-variance," Applied Economics Letters, Taylor & Francis Journals, vol. 19(4), pages 363-366, March.
    • Handle: RePEc:taf:apeclt:v:19:y:2012:i:4:p:363-366
    DOI: 10.1080/13504851.2011.579053
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    19. Qadan, Mahmoud & Nama, Hazar, 2018. "Investor sentiment and the price of oil," Energy Economics, Elsevier, vol. 69(C), pages 42-58.
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    22. Chi-Wei Su & Lidong Pang & Muhammad Umar & Oana-Ramona Lobonţ, 2022. "Will Gold Always Shine amid World Uncertainty?," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 58(12), pages 3425-3438, September.
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