The response of gold to the COVID-19 pandemic

Abstract

Purpose

This study aims to investigate how the gold return and its volatility respond to the COVID-19 pandemic.

Design/methodology/approach

Stochastic volatility (SV) models are conducted to examine the response of gold to the number of new confirmed cases and deaths.

Findings

The results indicate that an increase in the change rate of the number of COVID-19 infections or fatalities leads to heightened volatility in gold prices. Moreover, the results suggest that gold volatility is more sensitive to the impacts from high-income countries than by those from middle- and low-income countries. In addition, the asymmetric effect is detected in the gold price volatility, which is contrary to the typical asymmetric effect seen in the stock market. Furthermore, the results remain robust after accounting for the US dollar and the volatility index in relation to gold returns.

Practical implications

This study presents whether and to what extent gold is incorporated in the information related to the number of COVID-19 cases and deaths.

Originality/value

This study augments the existing literature by exploring how the number of COVID-19 infections and fatalities influences gold prices. In addition, it examines the day-of-the-week and asymmetric effects that may contribute to the volatility of gold prices. To the best of the authors’ knowledge, the evolution of gold has not yet been investigated using SV models.

Citation

Lu, Z. and Tanizaki, H. (2023), "The response of gold to the COVID-19 pandemic", Studies in Economics and Finance, Vol. 40 No. 5, pp. 859-877. https://doi.org/10.1108/SEF-05-2023-0258