Dynamic spillovers of geopolitical risks and gold prices: New evidence from 18 emerging economies

Abstract

Based on the spillover index model, we study the dynamic spillover effects between the geopolitical risks of 18 emerging countries and gold prices from February 1985 to June 2019. The results indicate that there is a significant spillover effect between geopolitical risks and gold prices, and the net spillover comes from the geopolitical risks on gold prices. Among 18 emerging countries, China, Ukraine, Saudi Arabia, Venezuela, and Argentina are net contributors, with China being the largest net contributor. A rolling window analysis shows that the spillover effects between geopolitical risks and the gold market present an increasing trend, and it would be strengthened significantly in the short term during major geopolitical events. In addition, we decompose gold prices into three types: gold supply shocks, aggregate demand shocks and gold specific demand shocks, and the phenomenon that spillover effects show considerably different patterns and magnitudes is observed.