Gold Price Ratios and Aggregate Stock Returns

43 Pages Posted: 18 Nov 2021 Last revised: 31 Oct 2022

See all articles by Tong Fang

Tong Fang

Shandong University - School of Economics

Date Written: September 9, 2020


We examine whether gold price ratios, which represent the relative valuations of gold, predict aggregate stock returns. We find that gold price ratios positively predict future stock returns in-sample, but fail to generate significant out-of-sample forecasting performance, except for the gold-oil price ratio (GO). GO is the most powerful predictor both in-sample and out-of-sample. The predictive ability of GO remains significant after controlling for traditional predictors and other gold price ratios. We find that GO drives stock returns through the cash flow channel, and is also associated with future bad economic conditions. The GO movement is determined by rare disaster concerns instead of economic fundamentals. Our results are robust to a series of tests.

Keywords: gold price ratio, predictive regression, return predictability, cash flow channel

JEL Classification: G12, G17, G53

Suggested Citation

Fang, Tong, Gold Price Ratios and Aggregate Stock Returns (September 9, 2020). Available at SSRN: or

Tong Fang (Contact Author)

Shandong University - School of Economics ( email )

School of Economics, Shandong University
No. 27 Shanda Nanlu
Jinan, Shandong 250100

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics