Dynamic linkages among the gold market, US dollar and crude oil market

Abstract

This paper aims to examine the dynamic linkages among the gold market, US dollar and crude oil market. The analysis also delves more deeply into the effect of the global financial crisis on the short-term relationship. We use fractional cointegration to analyze the long-term memory feature of these volatility processes to investigate whether they are tied through a common long-term equilibrium. The DCC-MGARCH model is employed to investigate the time-varying long-term linkages among these markets. The Krystou–Labys non-linear asymmetric Granger causality method is used to examine the effect of the financial crisis. We find that (i) there is clearly a long-term dependence among these markets; (ii) the dynamic gold–oil relationship is always positive and the oil–dollar relationship is always negative; and (iii) after the crisis, we can observe evidence of a positive non-linear causal relationship from gold to US dollar and US dollar to crude oil, and a negative non-linear causal relationship from US dollar to gold. Investors who want to construct their optimal portfolios and policymakers who aim to make effective macroeconomic policies should take these findings into account.