How do black swan events go global? -Evidence from US reserves effects on TOCOM gold futures prices

Abstract

This paper explores the link between the Fed's monetary policy and the price of gold futures in the context of emerging markets. We use a time series dataset of Fed rates from US Fed reserves and the TOCOM (Tokyo Commodity Exchange) gold futures price in the six interest rate increase cycles from 1983 to 2018, to explore the effect of Fed policy change on Japanese gold futures prices. This paper introduces the event study method to empirically analyse the relationship between the two, calculating that the TOCOM gold futures price is impacted by the six rounds of Fed interest rate hikes, although the extent varies with each different period. Finally, this study offers corresponding policy implications for governments, banks, enterprises and individual investors in emerging markets.