Correlation between crude oil and gold

Abstract

Oil and gold are considered to be the most two strategic commodities. Crude oil is the world’s most frequently transacted commodity while gold has a leading position among the main precious metals. This thesis examines empirically the relationship between gold prices, oil prices and US dollar index. Monthly data for gold prices, oil prices, US dollar index and other controlled variables over a period of 20 years were selected from Bloomberg platform. This thesis uses a unit root test and the Johansen test to check for the existence of cointegration between each pair of selected variables. Further this thesis uses Granger test to verify which commodity is affecting the price of the other. Our findings suggest a long run relationship between crude oil prices and gold prices. Granger causality test reveals causal links between gold and oil price levels. It shows that there exists a one way feedback relationship running from crude oil prices to gold prices.