Original scientific paper
https://doi.org/10.1080/1331677X.2019.1661789
Should gold be stored in chaotic eras?
Meng Qin
Chi-Wei Su
Xin-Zhou Qi
Lin-Na Hao
Abstract
This article explores the necessity to store gold in chaotic eras
from the perspective of geopolitical risk (G.P.R.). We examine the
casual relationship between G.P.R. and gold price (G.P.) by applying
the full- and sub-sample rolling-window bootstrap causality
test. The positive effect from G.P.R. to G.P. reveals that gold
should be stored in chaotic eras, due to its rising price during
high risks of geopolitics. However, the negative effect does not
confirm this view, G.P. may decrease during certain high G.P.R.
periods, which are not necessary to store gold. G.P. may also
increase during periods of low G.P.R., in order to hedge risks of
economic crises, rather than geopolitical events. These results are
inconsistent with the capital asset pricing model, which highlights
a positive effect from G.P.R. to G.P. In turn, the positive influence
of G.P. on G.P.R. points out that the gold market can be an effective
predictor of the risks of geopolitics. In the context of an
unstable pattern of global politics, investors and governments
can benefit from the gold value in the chaotic eras to avoid losses
and optimize investment. In turn, they can accurately predict
G.P.R. based on G.P., in order to prevent G.P.R.s.
Keywords
geopolitical risk (G.P.R.); gold price (G.P.); causality; rolling-window
Hrčak ID:
254382
URI
Publication date:
9.2.2021.
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