Why is gold different from other assets? An empirical investigation. Laurence (2003)
This 2003 paper from the World Gold Council analyses the correlations and relationships between the Real Price of Gold and major macroeconomic indicators.
The paper find that real returns on gold are not correlated with major macroeconomic variables such as the money supply, the growth rate of GDP, inflation as measured by US PPI and the three month interest rate.As this analysis is over the shorter term this fits with Levin and Wright’s (2006) findings that Gold and inflation have along run relationship that mean reverts.
In contrast relationships are found to exist between these variables and stock market returns (Dow and S+P), Bonds as well as base metals such as aluminium, copper and lead.
The authors argue that this lack of a relationship is what gives gold its diversifying ability.
Method: Vector Auto Regression (VAR) and Pearson Correlation Coefficient.
Data: Quarterly Data from January 1975 to 2001.London PM Fixings. PPI for Inflation.
Full Citation: Lawrence, C. (2003). Why is gold different from other assets? An empirical investigation. World Gold Council.