Empirical Analysis Of The Relationship Between Gold Price Price And U.S Dollar Exchange Rate

The global economy is involved in a financial crisis which hardly occur in a century due to the U.S. subprime mortgage crisis in2007. The US-led economies around the world have put forward liquidity slack policies in order to tackle the crisis. However, these policies have become potential threats such as global liquidity surplus and devaluation of credit currency. Under this circumstance, the importance of gold increases again. The tendency of gold price is worthy of notice and research since it is the last measure to defray as well as maintain the value of currency.The international gold price is bidden in US dollar. Gold is opposite to modern credit currency. Thus, the fluctuation of gold price is closely related to the status change of US dollar in international currency. According to current studies, there is a long-term equilibrium relationship between the gold price and the US dollar exchange rate. However, after the global financial crisis in2008, this relationship has been remarkably weakened. Moreover, the gold price and the US dollar exchange rate sometimes fluctuate to the same direction. The same situation has happened in the global stagflation period in the1970s. Therefore, three questions appear. First, does the long-term equilibrium relationship still exist between the gold price and the US dollar exchange rate? Second, under what circumstance, the gold price and the US dollar exchange rate will have short-term deviation? What factors will lead to this situation? Third, if the deviation happens, is there any other variables that can replace the predictive role of the US dollar exchange rate to affect the gold price tendency?Since the deficiency of the questions mentioned above in current researches, this paper focused on the short-term deviation question between the gold price and the US dollar exchange rate. Meanwhile, this study also proved that there is a long-term equilibrium relationship between the gold price and the US dollar exchange rate. According to the qualitative analysis of gold price and the US dollar exchange rate in multiple financial crises period, the short-term deviation of the gold price and the US dollar exchange rate only occurred in the global financial crisis (the global stagflation period of the late1970s and the global financial crisis in2008). And during regional crisis period (the Latin American debt crisis in1982, the Southeast Asian financial crisis in1997and the US subprime mortgage crisis in2007), the US dollar exchange rate still has a dominant influence on the gold price. There is a significant negative correlation between the US dollar exchange rate and the gold price. On the basis of qualitative analysis, this study selected six variables, which are the US Dollar Index, the Dow Jones industrial average, the1-year U.S. Treasury yield rate, the WTI petroleum prices, the VIX index and the ETF-SPDR net assets scale. Meanwhile, the VAR model of gold price is established by the daily data during September,2008to December,2012. This study pointed out that the influence of the US dollar exchange rate to gold price is weakened, while the influence of the VIX index, the ETF-SPDR net assets scale and the1-year US Treasury yield rate to the gold price is much higher. The VIX index, the ETF-SPDR net assets scale and the1-year US Treasury yield rate are good variables which can replace the predictive role of the US dollar exchange rate to affect the gold price tendency during the short-term deviation period of the US dollar exchange rate and gold price.