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London or New York – where and when does the gold price originate? 2013

by on February 13, 2014

This piece investigates which of the two largest gold markets, COMEX Futures and London PM Spot plays the largest in price discovery for gold. The authors find that neither is dominant as both come out on top in one of the two tests used and in both cases only by a marginal amount. At different times during the sample  each market does become significantly dominant and some of these are related to important global events. However in general a large amount of the switching is found difficult to explain. The authors provide another examination using different methods and a larger number of markets here.

Data: Daily COMEX 1m Futures closing price and London PM Fixing 1/1/86 – 31/7/12.

Methodology: Gonzalo Granger (1995) and Hasbrouck (1995) Information Shares. Error Correction Models.

Citation: Brian M. Lucey , Charles Larkin & Fergal A. O’Connor (2013): London or New York: where and when does the gold price originate?, Applied Economics Letters, 20:8, 813-817

Abstract: We investigate the Information Shares (ISs) of the two main centres of gold trading, over a 25-year period, using nonoverlapping 4-month windows. We find that neither London nor New York is dominant in terms of price IS, that the dominant market switches from time to time and that these switches do not appear to be very clearly linkable to macroeconomic or political events.

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