The Gold Price in Times of Crisis

32 Pages Posted: 2 Dec 2010 Last revised: 3 Aug 2013

See all articles by Jedrzej Pawel Bialkowski

Jedrzej Pawel Bialkowski

University of Canterbury - Department of Economics and Finance

Martin T. Bohl

University of Muenster

Patrick M. Stephan

University of Münster

Tomasz Piotr Wisniewski

Open University, UK

Date Written: August 2, 2013

Abstract

Motivated by the recent gold price boom, this paper investigates whether rapidly growing investment activities have caused a new asset price bubble. Drawing on gold's role as dollar hedge, inflation hedge, portfolio diversifier, and safe haven, we calculate fundamentally justified returns, approximate gold's fundamental value, and apply a Markov regime-switching Augmented Dickey-Fuller (ADF) test which has substantial power for detecting explosive behavior. Although our results are sensitive to the specification of the fundamental value, we show that a model accounting for the current European sovereign debt crisis accurately tracks the gold price observed in the market.

Keywords: Gold Price, Speculative Bubble, Markov Regime-Switching ADF Test, World Financial Crisis, European Sovereign Debt Crisis

JEL Classification: G10, G11, G12

Suggested Citation

Bialkowski, Jedrzej Pawel and Bohl, Martin T. and Stephan, Patrick M. and Wisniewski, Tomasz Piotr, The Gold Price in Times of Crisis (August 2, 2013). Available at SSRN: https://ssrn.com/abstract=1718106 or http://dx.doi.org/10.2139/ssrn.1718106

Jedrzej Pawel Bialkowski

University of Canterbury - Department of Economics and Finance ( email )

Private Bag 4800
Christchurch
New Zealand

Martin T. Bohl (Contact Author)

University of Muenster ( email )

Schlossplatz 2
D-48149 Muenster, D-48149
Germany

Patrick M. Stephan

University of Münster ( email )

Universitätsstr. 14-16
48143 Muenster, NRW 48143
Germany

HOME PAGE: http://www.wiwi.uni-muenster.de

Tomasz Piotr Wisniewski

Open University, UK ( email )

Walton Hall
Milton Keynes, Buckinghamshire MK7 6AA
United Kingdom

Register to save articles to
your library

Register

Paper statistics

Downloads
1,583
Abstract Views
6,607
rank
10,558
PlumX Metrics