Does oil impact gold during COVID-19 and three other recent crises?

Abstract

The ongoing COVID-19 pandemic has inspired an examination of the oil–gold prices nexus during four recent crises: the COVID-19 pandemic, the gold market crash, the European sovereign debt crisis, and the global financial crisis. Using daily data from May 2007–August 2021, we employ the nonlinear autoregressive distributed lag method to reveal five novel findings. First, this study contrasts with much of the literature, which infers that the relationship between oil and gold prices is strongly positive. Second, we find no oil and gold price relationship in the long term during all the crisis periods. Third, oil prices have substantially lost their power to predict gold prices in recent times and the oil–gold price linkage is not functional across all crisis periods. Fourth, in the short term, only negative Brent and negative West Texas Intermediate price changes cause positive gold price changes during the pandemic and gold market crash, respectively. Fifth, Brent prices have shown no link to gold prices before COVID-19. We argue that gold prices are less sensitive to oil prices than ever, and the uncertainty resulting from the COVID-19 crisis has attracted investors to gold. Our main findings hold under robustness analyses using fractional cointegration/integration models, lag length, and heteroskedasticity-consistent standard errors.