How did gold prices respond to the COVID-19 pandemic?

ABSTRACT

This paper investigates the asymmetric impact of COVID-19 on gold prices by making use of high frequency data and a recently developed nonlinear estimation approach. The analysis considers three main dimensions of COVID-19: daily new cases, recoveries and deaths. The findings reveal that decreases in COVID-19 new cases and increases in recoveries cause an upswing in gold prices. These evidences imply that the reduction in new COVID-19 cases or more recoveries from COVID-19 improves both investors’ and consumers’ psychological confidence. In other words, the investors and consumers become more optimistic about their future and tend to demand more gold. On the other hand, the increases (decreases) in policy uncertainty, oil prices, and world stock index performance elevate (reduce) gold prices. The study also establishes a positive nexus between equity market uncertainty and gold prices.

KEYWORDS:

• Gold prices
• COVID-19
• policy uncertainty
• equity market uncertainty

JEL CLASSIFICATION:

• C32
• D81
• F31
• G15

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ Xu, Su, and Ortiz (2021) documented that the gold can be treated as a reliable hedge against the inflation both in short-run and long-run, while Su et al. (2020) revealed a negative association between bitcoin and gold prices.

² To conserve space in the paper, detailed discussion on NARDL method is not provided.:

³ The study applied both augmented Dicky – Fuller (ADF) and Phillips – Perron (PP) tests and their results confirm that all the selected variables were stationary either in I(0) or I(1). The results of these tests are not reported in the paper to conserve the space..

⁴ The standard regression output of the NARDL method is not reported in the paper to conserve the space.