Abstract
We examine the causal relation between oil and gold prices in the Indian context using the Hiemstra and Jones (1994) nonlinear Granger causality tests and nonlinear ARDL tests. The oil prices linearly Granger causes the gold prices in both short- and long-run. The results of Hiemstra and Jones (1994) nonlinear Granger causality test show a strong evidence of bidirectional nonlinear relation between oil and gold prices. The results of the nonlinear ARDL test reveal that positive shock in oil prices has more pronounced effect than negative shocks on gold prices. In the long-run, the relation between oil and gold prices is stickier towards upper side which emphasizes that gold prices are relatively more sensitive to increasing oil prices. We therefore conclude that the interactive mechanism between oil and gold prices is nonlinear and asymmetric.
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