Gold Pricing Model During the Financial Crisis

17 Pages Posted: 9 May 2012 Last revised: 10 Jul 2012

See all articles by Sihai Fang

Sihai Fang

Hongyuan Securities

Wei Fan

Tsinghua University

Tao Lu

Research Center, China Securities Regulatory Commission

Date Written: May 9, 2012

Abstract

As a special commodity, gold possesses multiple features: as commodity, currency and hedging instrument. Its currency and hedging features are well manifested during the first stage of this financial crisis since 2007. However, the hedging feature of gold was hardly discussed before. The above three features decompose gold’s value into three parts: the commodity value, the currency value and the risk premium value. In this paper, the CRB index, the USDX index and the U.S. Treasury CDS spread are selected as variables in our VAR model. As a result, we find that the USDX index is negatively correlated with the gold price, while the CRB index and the U.S. Treasury CDS spreads are positively correlated with the gold price. In particular, it is found that the one-lagged CRB index, one-lagged USDX index, and two-lagged U.S. Treasury CDS spreads have significant impact on the gold price.

Keywords: Gold, Financial crisis, Asset pricing

JEL Classification: E44, F31, G12

Suggested Citation

Fang, Sihai and Fan, Wei and Lu, Tao, Gold Pricing Model During the Financial Crisis (May 9, 2012). Available at SSRN: https://ssrn.com/abstract=2055266 or http://dx.doi.org/10.2139/ssrn.2055266

Sihai Fang (Contact Author)

Hongyuan Securities ( email )

Beijing
China

Wei Fan

Tsinghua University ( email )

No.1, Tsinghuayuan Road,Haidian District
Beijing, Beijing
China

Tao Lu

Research Center, China Securities Regulatory Commission ( email )

A Place Focus, No. 19 Jin Rong Street,
Xi Cheng District
Beijing, 100033
China

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