Analysis Of The Fed Conferences’ Effect On Gold Price Since The Subprime Crisis

Given the attribute of both commodities and financial instruments, gold has marched its way toward demonetization since the breakdown of the Bretton Woods System in the1970s, and gold price has been market oriented gradually. Henceforward, the volatility of gold price has been heightened day by day, from30dollars per ounce in the1970s to1900dollars per ounce in2011, with more and more factors influencing gold price:the fluctuation of supply and demand, the inflation rate, the US dollar index, the oil price, the stock price, the international affairs, etc. This dissertation intends to analyze the effects on gold price of the factors mentioned above, with the US dollar index highlighted. Meanwhile, the influence of international economic conferences since the Subprime Crisis on gold price has been tested, applying event-study analysis.While studying the influencing factors of gold price, its evolutionary process must be comprehended. Gold price processed its path through strict regulation toward deregulation and finally got marketed in the overseas. With the attribute of both commodities and financial instruments, gold has always been playing an important role in the international economic and financial markets. In a sense, the evolutionary process of gold price reflected that of the economic history of various countries around the world. The evolution of gold price can be roughly divided into three stages:the mint parity stage (ie, before the Bretton Woods System), the authoritative pricing stage (ie, during the Bretton Woods System), and the market pricing stage (ie, after the Bretton Woods System).The formation of Bretton Woods System symbolized gold coming to the historical stage as international medium of payment, and its pricing mechanisms was adjusted to authoritative pricing. However, along with the breakdown of the Bretton Woods System, gold began to demonetize and retreated from the arena of history as the hard currency, associated with gold price being marketized. In the wake of the opening-up and marketizing of gold price, the number of factors affecting it grows progressively with each passing day, leaving the pricing mechanisms with more complexity. Therefore, theoretical analyses of these influencing factors on gold price were done systematically after the previous work. By means of data analysis and literature review, we conclude that gold price rises along with the inflation rate in the short term. Next, we focused to test the effect of the US dollar index on gold price due to the fact that gold was priced in terms of US dollar. Inverse relationship between the USD index and gold price was concluded through empirical analysis. Stock price (measured as stock indices) and oil price (prude oil price) were also taken into account. We found gold price was negatively correlated with the Dow Jones Average, while positively correlated with oil price in the long run.To verify our theoretical analysis, certain empirical tests have been done using EVIEWS6.0. By cross correlation analysis, unit root test, cointegration test and granger causality analysis, hypotheses of positive correlations between inflation rate, oil price and gold price and inverse relation between the USD index, the Dow Jones Average and gold price proved to be true. VAR model was set up to test the relation between the USD index, inflation rate, oil price, Dow Jones Average and gold price, and a conclusion was drawn:as time goes by, autocorrelation of gold price reduced by degrees, while influences of changes in the USD index, inflation rate, oil price, Dow Jones Average were lasting, implying long-term impact.At last, On the basis of the former research, our emphasis was placed on the abnormal fluctuations of gold price since the Subprime Crisis, examining whether Fed conferences had effects on it. Event-study analysis was applied to examine the relation between Fed conferences and gold price. We came to conclude that the convoking of international economic conferences itself did deliver some new information to the gold market, which were the ones provoking fluctuations of gold price. Moreover, Cumulative TSAR was not statistically significant, implying a short-run relationship between the Fed conferences and gold price.Several suggestions concerning the investment strategies were given at the end of this dissertation. Article uses event-study analysis innovatively, quantitative reasoning the influences of Fed conferences for gold prices. And concluded:Fed conferences influence the international gold price obviously.Meanwhile, the special natures of gold made the influencing matters of its price different with other financial assets, and the limited individual ability, there are still some shortcomings and deficiencies in this paper. Since the financial crisis, there were a limited number of conferences, which held by Fed, and every conference had different impact on the gold market, therefore, it can not be quantified, we need to study for continually.This paper is divided into four parts, the specific structure and main points are as follows:Chapter Ⅰ:Introduction section. Introduce the background of this research, the significance and the ideas and methods, and an overview of previous research.Chapter Ⅱ:As the basis of the timeline, the establishment and the collapse of the Bretton Woods system as the key event node, introduces the historical evolution of the international gold price.Chapter Ⅲ:The core part of the paper, theoretical analysis and empirical tests of the influences by inflation, dollar index, stock index, and oil prices for gold prices, and establish VAR model for gold prices and its influencing factors. Focus on using event analysis, analysis of the influences by Fed meeting for gold prices.Chapter Ⅳ:Summarize article’s conclusion, and give some advices to the investors.