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Gold and Oil Futures Markets: Are Markets Efficient? 2010

by on November 11, 2013

This paper uses the theoretical link between oil as a driver of inflation; and inflation as a driver of gold prices to assess whether oil price changes can be used to predict gold prices. They find that there is a long run equilibrium between the two markets for all maturities. This implies that the markets are jointly efficient.

Methodology: Unit root and cointegration tests. OLS.

Data: 2/01/1995 to 03/06/2009 for gold and oil futures from Bloomberg for 1,3,4 , 6, 9, and 10 month maturities.

Citation: Narayan, Paresh Kumar, Seema Narayan, and Xinwei Zheng. “Gold and oil futures markets: Are markets efficient?.” Applied energy 87.10 (2010): 3299-3303.

Abstract: In this paper we examine the long-run relationship between gold and oil spot and futures markets. We draw on the conceptual framework that when oil price rises, it creates inflationary pressures, which instigate investments in gold as a hedge against inflation. We test for the long-run relationship between gold and oil futures prices at different maturity and unravel evidence of cointegration. This implies that: (a) investors use the gold market as a hedge against inflation, and (b) the oil market can be used to predict the gold market prices and vice versa, thus these two markets are jointly inefficient, at least for the sample period considered in this study.

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From → Empirical, Gold

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