Who Sets the Price of Gold? London or New York?

Abstract

We investigate which of the two main centers of gold trading-the London spot market and the New York futures market-plays a more important role in setting the price of gold. Using intraday data during a 17-year period we find that although both markets contribute to price discovery, the New York futures play a larger role on average. This is striking given the volume of gold traded in New York is less than a tenth of the London spot volume, and illustrates the importance of market structure on the process of price discovery. We find considerable variation in price discovery shares both intraday and across years. The variation is related to the structure and liquidity of the markets, daylight hours, and macroeconomic announcements that affect the price of gold. We find that a major upgrade in the New York trading platform reduces the relative amount of noise in New York futures prices, reduces the impact of daylight hours on the location of price discovery, but does not greatly increase the speed with which information is reflected in prices.

Gold and inflation(s) – A time-varying relationship

“…First, the UK and the USA are the leading centers for global gold trade. As discussed in Hauptfleisch et al (2016) these two markets dominate global gold price setting. Japan provides an interesting counterpoint, with the Tokyo exchange also operating as part of the global gold price making system (Xu and Fung (2005), Morales and Andreosso-O'Callaghan (2011)) but in a country with very different inflation experiences to the UK and USA.…”

Price Discovery in the Chinese Gold Market

“…Hauptfleisch et al (2015) use Putniņš (2013) information leadership share to confirm that New York leads the other financial centers in terms of gold price discovery. This exhibits the contrasting inferences drawn from using the unmodified Gonzalo and Granger (1995) and Hasbrouck (1995) that led to Lucey et al (2013) concluding that in fact London was the dominant center in terms of gold price discovery.…”

Price discovery in the Chinese gold market

“…He suggests a new measure, ILS, by combining IS and CS measures with the new measure capturing only permanent shocks on asset prices. Hauptfleisch, Putniņš, and Lucey (2016) use Putnins (2013) ILS to confirm that New York leads the other financial centers in terms of gold price discovery. This finding exhibits the contrasting inferences drawn from using the unmodified Gonzalo and Granger (1995) and Hasbrouck (1995) that led Lucey et al (2013) to conclude that London was in fact the dominant center in terms of gold price discovery.…”