Abstract
This paper investigates the presence of a long-run relationship between the daily prices of oil and gold over the period 1986-2015. The presence of such a long-run relationship implies that the two markets are jointly inefficient; and that one price can be used as a predictor for the other price. We also test the presence of one or multiple structural breaks in the long-run relation. The presence of structural breaks suggests that the magnitude and the sign of the relationship between oil and gold prices may be different across different regimes. Our methodology is based on endogenous structural break tests and tests of cointegration with one or multiple breaks. Our results show that indeed this relation has changed over time and is subject to two or five regime changes. However, we do not find evidence for cointegration with or without breaks. The absence of a long-run equilibrium between oil and gold prices suggest that oil prices are biased predictor of gold prices. Hence, past information of oil prices is not relevant in forecasting gold prices.
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