The response of precious metal futures markets to unconventional monetary surprises in the presence of uncertainty

This article examines the relationship between the unconventional monetary policies and precious metal futures markets by employing an asymmetric conditional volatility specification. The results suggest that the Fed announcements that likely induced lower long‐term yields on average led to significant increases in the returns, while the effect of the ECB's unconventional monetary announcements is much weaker. Also, monetary policy surprises from both Fed and ECB have larger effects on gold return volatility. Moreover, while there are no asymmetric return responses to positive and negative surprises embedded in the monetary policy from the Euro zone, the return reactions of price returns to surprises in Fed's announcements exhibit asymmetry. Furthermore, our analysis shows that the volatility reactions are limited to negative surprises. Finally, we find evidence that the response of gold price changes to monetary announcements by the Fed becomes weaker in the presence of monetary policy uncertainty. We show also that the response of precious metal returns hinges on the sign of the unexpected component of Fed announcements.