Testing explosive behavior in the gold market

Abstract

This paper examines the explosive behavior in the gold market. Using the generalized sup ADF (GSADF) test introduced by Phillips et al. (Testing for multiple bubbles. Cowles Foundation Discussion Paper No. 1843, 2012), we quantitatively examine the existence of explosive periods in the gold market during the period between 1968 and 2013. The date-stamping strategy associated with the test provides a real-time estimation for the origination and termination dates of each explosive period in the gold market, and several explosive periods, including both the famous 1980 explosion and the most recent 2011 explosion, are identified. Our results also demonstrate that, when multiple explosive periods exist within a specific time interval, the GSADF test is more accurate and effective in detecting them than the approach introduced by Phillips et al. (Int Econ Rev 52(1):201–226, 2011), which is relatively conservative. This paper provides further evidence that gold is the safe haven for assets under huge risk and the gold price reacts to political and economic uncertainties relatively faster than other selected commodities do.