Has the long-run relationship between gold and silver prices really disappeared? Evidence from an emerging market

Abstract

Following the seminal paper on gold and silver prices by Escribano and Granger (1998), a growing number of empirical studies have studied the possible existence of a stable and cointegrating relationship between gold and silver prices. This paper examines the long-run equilibrium relationship between gold and silver prices in the emerging market of India using annual data for the sample period 1978–1979 to 2018–2019. We find robust evidence of a stable cointegrating relationship between gold and silver prices in India. The estimation of cointegrating relationship using six estimators provides robust evidence of a positive impact of gold prices on silver prices in the long-run. The results indicate that silver prices are quite responsive to gold prices in both the long-run and short-run in India. Our findings provide robust evidence of a stable long-run relationship between gold and silver prices in India. The results have important implications for predicting returns, hedging against similar risks, understanding the role of two commodities in portfolio diversification, and the nature of two markets over time.