The Effects of Economic Newson Commodity Prices: Is Gold Just Another Commodity?

Abstract

This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.The paper uses an event study methodology to investigate which and how macroeconomic announcements affect commodity prices. Results show that gold is unique among commodities, with prices reacting to specific scheduled announcements in the United States and the Euro area (such as indicators of activity or interest rate decisions) in a manner consistent with gold's traditional role as a safe-haven and store of value. Other commodity prices, where such news is significant, exhibit pro-cyclical sensitivities and these have risen somewhat as commodities have become increasingly financialized. These results are important for those trading in the commodity markets on a frequent basis and long-term market participants that take their decisions based on information on price fundamentals, which are reflected in the release of macroeconomic announcements.

Macro News and Commodity Returns

“…This asymmetric response is a common finding in the literature (e.g. Roache and Rossi, ). Volatility spillovers are bigger in size and affect most commodity returns.…”

Does gold glitter in the long-run? Gold as a hedge and safe haven across time and investment horizon

“…In contrast Erb and Harvey (2013) question the ability of gold to hedge against inflation, both in the short-and long-run. Distinct from other commodities, Roache and Rossi (2009) show that gold is sensitive to macroeconomic news, in particular it has a counter-cyclical reaction to unexpected news.…”

Impact of macroeconomic news on metal futures

“…Some notable exceptions exist. Using daily data, in a broader examination of 12 different commodities including gold, silver and copper, Roache and Rossi (2010) find that daily prices are relatively insensitive to macroeconomic news. Hess et al (2008) provide a state-dependent interpretation of macroeconomic news by showing that daily commodity prices are responsive only during recessionary periods, but not during periods of economic growth.…”

“…First, our analysis is based on high-frequency intra-day data, which allows us to detect patterns of market reaction that may not be easily discerned in lower frequency daily data. In this regard, it is important to point out that the empirical literature using daily data finds only mixed or relatively weak evidence of the link between macroeconomic announcements and commodity prices (see Roache and Rossi, 2010;Hess et al, 2008), thus lending support to the argument that, unlike other assets, commodity prices are predetermined with respect to US macroeconomic aggregates such as real output, consumption and investment variables (Kilian and Vega, 2010). Therefore, an investigation of how an important class of commodities, specifically metals, responds to macroeconomic news at intra-day frequencies provides a meaningful contrast with existing studies.…”