Prices Return And Market Volatility Analysis On Precious Metal Markets

Interactions between commodities and macroeconomic fundamentals have received amount of investigation from the academy in the sense of their direct function to industrial production, their potential influence on inflationary expectation, and, as an investment asset, their key role in reducing risk to a combined portfolios. Precious metals, such as gold, silver, platinum and palladium, distinguish themselves from other traded commodities in terms of their storability and durability. But researches on them are not so much. Hence, with the help of qualitative and quantitative method, a main aim of this study is to offer a relatively comprehensive analysis for the four precious metal markets.On the qualitative analysis part, this study outlines several precious metal market main in the world, at first. Then followed by discussions on the supply and demand factors in the four metal markets. Finally, considering the monetary and financial attributes of precious metals, the research develops the topic on the mechanism between prices of precious metals and major macroeconomics, and also their price association with crude oil.In the empirical study part, this paper examines the interactions between the four precious metal markets (gold, silver, platinum and palladium) and five selected variables (CPI/Inflation. crude oil, interest rate, industrial production, and the U.S. dollar index). Involved methodology covers Granger causality test, ECM and VAR model building, and techniques on accumulated Impulse Response (IPR) and Variance Decomposition (VDC). Several interesting results are found. Each precious metal price is co-integrated with interest rate and can act as indicator to interest rate as well. Inflation and U.S. dollar index are found to have significant impact to precious metal returns, whereas oil returns only demonstrate impacts in short-run. The weak long-run correlation between returns of oil and precious metals are further assumed for a possibly existed indirect relationship. Finally, the volatility structure of each precious metal markets is explained in detail with the help of IGARCH and CGARCH models.