ABSTRACT
China has been the world’s largest gold producer since 2007 and the world’s largest gold consumer since 2013. However, despite it being the second largest exchange-traded market in the world, gold price shows persistent volatility and deviations from the international gold price. This study explores the impact of fundamentals, global contagion and financial shocks on the gap between international and domestic gold price using an extended GARCH model. The empirical study shows that the exchange rate of renminbi plays an important role in moving the price gap. The global contagion factors associate more with the level of the price gap, not with the volatility; policy shocks do not present expected significant influence on the price gap. For black swan events, their impact on both level and volatility of the price gap is discernible.
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Acknowledgement
This work of J. W. Wang was supported by the National Natural Science Foundation of China (NSFC) (Grant Nos. 71571156, 71831006), by the University of Hong Kong through the Seed Fund for Basic Research (Grant No. 201811159163), and by the open project funded by State Key Laboratory of Synthetical Automation for Process Industries (PAL-N201802).
Disclosure statement
No potential conflict of interest was reported by the authors.