A Vector Error Correction Model Analysis of Gold Prices - How Will COVID-19 Impact the Price of Gold?
12 Pages Posted: 9 Jul 2020 Last revised: 13 Jul 2020
Date Written: July 7, 2020
Gold has proven to be a sturdy investment to weather the storm of economic demise time and time again, however there lies no consensus on a model to capture the movement of gold prices. This study attempted to predict the implications of the recession brought about by the COVID-19 pandemic on gold prices. Hence, this study made an attempt to analyze the correlations of the price of gold with the price of crude oil, USD index and real world GDP per capita using annual data pertaining to the sample interval range from 1973 to 2015. A VEC model of gold prices was used to uncover that changes in real GDP per capita, crude oil prices and the USD index had no long run equilibrium relationship with the price of gold. The study also found through a Granger Causality test that the aforementioned variables do have a short run impact on the prices of gold. The paper concludes that the COVID-19 pandemic will not have a significant impact on gold prices in the long run.
Keywords: VEC, gold prices, crude oil prices, USD index, Johansen co-integration, stationarity, Granger causality
JEL Classification: C20, E00
Suggested Citation: Suggested Citation