The Long-Run Relationship between Precious Metal Prices and the Business Cycle

Abstract

This study examines the long-run relationships between major precious metal prices over the last forty years. Using a vector error correction model, we find that weekly futures log prices of gold and silver, and gold and platinum appear to be cointegrated. The results show that the cointegrating relationships between precious metal prices are not stable over time with significant shifts in the price relations around business cycle peaks and during recessions. Our results indicate that the long-run relationships between precious metal prices are strongly influenced by economic conditions. These findings should contribute to the growing literature on linkages between macroeconomic fundamentals and the exact nature of the price relationships across different precious metals.

Keywords: gold, silver, and platinum prices, cointegration, the business cycle

JEL Classification: G1, E3, C22