Analysis of the relationship between oil and gold prices

analysis of the relationship between oil and gold prices

The results of the VAR analysis indicated that gold prices have a to the results of the VECM analysis, gasoline and crude oil prices have no long-term . As a result, they detected a two-way causality relationship between. ANALYSIS OF CORRELATION BETWEEN GOLD AND CRUDE OIL RELATIONSHIP BETWEEN U.S DOLLAR, CRUDE OIL PRICES & GOLD PRICES. Abstract. This article focuses on the relationship between oil and gold prices. The aim of this article is to analyze and determine the character of the.

December 19, So, please feel free to read it as if it was written today.

Dollar Gold Oil Natgas Technical Analysis Chart 10/19/2018 by

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Having said that, let's move to the analysis. In the financial markets, gold is usually ascribed to the commodities category. In this group of assets you will find your good old friend, silver, along with several others metals like platinum, palladium, copper etc. Apart from that, commodities encompass a broad range of other products in the like of corn, but also crude oil, gas, minerals and other.

Such groups of assets are usually traded on commodity exchanges specialized in this kind of products, for instance on the Chicago Mercantile Exchange or the London Metal Exchange. Commodities differ from stocks or bonds in the fact that, usually they have significant importance for some industry.

For example, silver is used in the production of electrical conductors and oil is used as fuel for various kinds of machines. The main difference from a financial point of view is that, other than bonds and stocks, commodities do not give you cash flows in the like of dividends, coupons or the principal.

analysis of the relationship between oil and gold prices

The only way in which commodities generate returns excluding industrial applications is when their price changes in the direction you bet on. Since price changes are of crucial importance for commodities investors, relationships between these commodities are often examined in detail to establish if prices of one commodity can fuel prices of another.

It is, for instance, almost universally acknowledged that there is a strong relationship between prices of gold and silver, where the price of silver strongly depends on the price of gold. It is argued that prices of gold and oil are also related. Higher price of oil would translate in higher prices of gold. Since there is no apparent intuitive connection between what happens with oil and what happens with gold, there is need for some explanations here.

Increases in the price of oil result in increased prices of gasoline which is derived from oil. The final result is an increased price level — in other words, inflation. The second part of the causal link is the fact that precious metals tend to appreciate with inflation rising in the current — fiat — monetary environment.

So, an increase in the price of crude oil can, eventually, translate into higher precious metals prices. It presents prices of gold and Brent crude oil in the period. As it turns out, both commodities tend to trade in the same direction. The relationship is far from perfect but it seems to be there. The basic idea is simply that if you have two quantities e. The result is This is further confirmed by another chart. On this chart, we have plotted prices of gold in relation to prices of Brent crude oil.

This chart can be interpreted in the following way: We see that the cloud of points is generally rising in the price of oil. This suggests, just as the previous chart did, that there is a relation between the two price levels: One puzzle here is that it usually takes some time for higher oil prices to materialize as higher prices in goods and services.

One explanation can be that, once oil appreciates, precious metals investors discount the expected future higher prices o goods in the price of gold and gold goes up. With such results on the table, it would be tempting to proclaim that you can trade this relationship. The results here are completely different than before.

analysis of the relationship between oil and gold prices

R-squared suggests that 7. We have obtained similar results for daily, monthly and quarterly returns. The main point is that, even though the general price level of gold evolves in a similar direction to oil, the relationship may not be tradable based on data for the long term.

So, even though there seems to be no relationship between gold and oil returns over the long term, it may happen that a relationship unveils itself in a short period of time offering trading opportunities.

Introduction Gold has been used in market since as commodity. The importance of gold has been increased in the present world due to the financial crisis in the present economic world.

The investors are investing in the Gold. In the recent decade the gold prices and oil prices rise day by day.

Where the Relationship between Gold and Oil Works and Where It Does Not | Sunshine Profits

Pakistan is in possession of Pakistan is the 5th largest country in the world having gold reserve. The production of gold in Pakistan is very low and it has recently joined 1 Lecturer, Department of Commerce, University of Sargodha, Address: In Present situation gold has attracted the investors due to a little chance to go better outcomes in the stock market investments due to fragile economic and financial position in Pakistan. In market a market where shares are traded, is called stock market or equity market.

analysis of the relationship between oil and gold prices

In Karachi Stock Exchange KSE Pakistan was declared as a best market in the world by the international magazine Business Week Bloomberg Business Week, and with reference to Sheth also got leading status in global emerging market before Karachi Stock Exchange KSE is working as a main stock exchange of Pakistan watching worst sell-off positions in the present situations. Investors are showing low interest in the stock markets and investing in highly solid investment like gold due to rising trend in gold prices.

The purpose of this study is to explore the relationship between the Gold prices, Stock market return and Oil prices. Further research will be conducted on why Gold prices and oil prices have not significant relationship with KSE returns.

Further research will be also conducted on Gold prices and Oil prices relationship with other stock markets returns. Second chapter cover the literature review, third chapter covers the data and methodology, fourth chapter covers the results and their interpretation and the last chapter covers the conclusion and references.

Literature Review Shahzadi And Chohan conduct study on impact of gold prices on stock exchange by using data from to five years of KSE Karachi Stock Exchange and gold market.

This study uses average gold prices and KSE index as variables. The results shown that there is a negative Correlation between the gold prices and Karachi stock exchange indices, co-integration test provided that there is not a long run relationship between the both variables, Granger Causality test cannot be applied because there is no co-integration between the two variables. Data is taken from the year to on monthly basis.

Relationship between Gold and Oil Prices and Stock Market Returns | Muhammad Mansoor -

Descriptive statistics results show that Karachi Stock Exchange and Dhaka Stock Exchange are found with high returns and high risk, while Bombay Stock Exchange is giving lower returns with high risk. Results of correlation analysis show that there exists no significant correlation between these markets. Correlation results were showing positive correlation but it is very low to establish any significant relationship among these markets.

Kaliyamoorthy and Parithi conducted a study on relationship between gold market and stock market. NSE monthly index data and monthly gold prices is taken as variable from June to June Chi square is applied to find relationship between gold prices and Stock market indices.

The result shows that there is no relationship between gold prices and stock market indices. Stock market indices are increased and gold market is also increased, but stock market is not a reason for increase in the gold rates. Another study is made by Nguyen et al. This study used data of the indices from to to calculate the dependence of gold market and stock market.

This study applied correlation, Archimedean copulas and linear convex combination tests to analysis the data. This research result shows that most of the stock market showed no dependence with the gold price while Indonesia, Japan and the Philippines market have left tail dependence. Malaysian stock market has right tail dependence on gold market. The price of gold-mining stock increases 0. The paper initially studies the 12 gold-mining firms in the period January to Decemberon changes in the gold price.

This research applied Descriptive statistics, computing Beta, correlation and Auto correlation to explore the relationship between the markets.

analysis of the relationship between oil and gold prices

There is no relationship found between gold premium, reserve ratio and gold prices. The study data consist of monthly data beginning from January to March of all indices.

By empirical finding highly negative correlation is found between gold prices and USA exchange rates. The results also indicate that there is a positive relationship between the oil prices and stock prices.

Simakova analyze the Relationship between Oil and Gold Prices for the period to The data sample is taken from to observations and to 96 observations to determine the relationship and how other factors influences the stock exchange prices. Granger causality test, Descriptive statistics and Quantitative analysis, Vector Error Correction model are used to find relationship between the gold and oil prices.

Quantitative analyses show Co-movement between oil and gold prices. Correlation analyses show co-movement in oil price and interest rates and opposite movement in gold price and interest rates.

Where the Relationship between Gold and Oil Works and Where It Does Not

Co integration test also present long-term relationship between all variables. Bhunia and Das made a study on the association between gold prices and stock market returns. This study is based on data gathered from different data sources are ministry of finance, NSE database and Bloomberg database India. This study used Eviews 6. This research used all these tests for the purpose to find association between the variables. This study concluded that the existence co- movement of stock prices and gold prices during the period financial crisis and thereafter.

There exist co-integrations in four countries Japan, Germany, Taiwan, and China indicates that there exist long-term stable relationships among these variables.

While there is no co-integration relationship among these variables and the U. This study uses data monthly from the database of reserve bank of India.

This research analyzes the data from to annual price movement of gold in Indian market and stock market, BSE index period January to December This study tells that there exist long run equilibrium relation between gold market prices and stock market in India. Smith conduct research is on the relationship between stock exchange prices and gold price using daily, weekly and monthly data from to Four gold prices and six stock exchange indices were included in the study.