Who Sets the Price of Gold? London or New York?

Journal of Futures Markets (Forthcoming)

38 Pages Posted: 16 May 2015 Last revised: 3 Feb 2016

See all articles by Martin Hauptfleisch

Martin Hauptfleisch

University of Technology Sydney (UTS)

Tālis J. Putniņš

University of Technology Sydney (UTS); Stockholm School of Economics, Riga

Brian M. Lucey

Trinity Business School, Trinity College Dublin; Ho Chi Minh City University of Economics and Finance; Jiangxi University of Finance and Economics

Date Written: November 30, 2015

Abstract

We investigate which of the two main centers of gold trading — the London spot market and the New York futures market — plays a more important role in setting the price of gold. Using intraday data during a 17-year period we find that although both markets contribute to price discovery, the New York futures play a larger role on average. This is striking given the volume of gold traded in New York is less than a tenth of the London spot volume, and illustrates the importance of market structure on the process of price discovery. We find considerable variation in price discovery shares both intraday and across years. The variation is related to the structure and liquidity of the markets, daylight hours, and macroeconomic announcements that affect the price of gold. We find that a major upgrade in the New York trading platform reduces the relative amount of noise in New York futures prices, reduces the impact of daylight hours on the location of price discovery, but does not greatly increase the speed with which information is reflected in prices.

Keywords: Price Discovery, Gold, Gold Futures, Market Microstructure

JEL Classification: G13, G14, G15

Suggested Citation

Hauptfleisch, Martin and Putnins, Talis J. and Lucey, Brian M., Who Sets the Price of Gold? London or New York? (November 30, 2015). Journal of Futures Markets (Forthcoming), Available at SSRN: https://ssrn.com/abstract=2606587 or http://dx.doi.org/10.2139/ssrn.2606587

Martin Hauptfleisch (Contact Author)

University of Technology Sydney (UTS) ( email )

15 Broadway, Ultimo
PO Box 123
Sydney, NSW 2007
Australia

Talis J. Putnins

University of Technology Sydney (UTS) ( email )

PO Box 123
Broadway
Sydney
Australia
+61 2 9514 3088 (Phone)

Stockholm School of Economics, Riga ( email )

Strelnieku iela 4a
Riga, LV 1010
Latvia
+371 67015841 (Phone)

Brian M. Lucey

Trinity Business School, Trinity College Dublin ( email )

The Sutherland Centre, Level 6, Arts Building
Dublin 2
Ireland
+353 1 608 1552 (Phone)
+353 1 679 9503 (Fax)

Ho Chi Minh City University of Economics and Finance ( email )

59C Nguyen Dình Chieu
6th Ward, District 3
Ho Chi Minh City, Ho Chi Minh 70000
Vietnam

Jiangxi University of Finance and Economics ( email )

South Lushan Road
Nanchang, Jiangxi 330013
China

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