The impact of UK monetary policy on gold price dynamics: evidence from UK index-linked gilt market

Zhu, Y., Fan, J. ORCID: 0000-0003-4447-6580 and Tucker, J., 2016. The impact of UK monetary policy on gold price dynamics: evidence from UK index-linked gilt market. UNSPECIFIED.

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Abstract

Ever since the collapse of the Bretton-Woods system, gold has retained its function as an important monetary commodity (Baur and Lucey, 2010), and continues to provide important inflation forecasting information to monetary policy setters (Tkacz, 2007). However, Capie et al. (2005) highlight the instability of gold price dynamics through time, attributing it to unpredictable political attitudes and events. In this paper, we investigate gold price dynamics under different monetary policy regimes using UK index-linked gilt data. We show that gold lost its role as an inflation hedge after May 1997, supporting the argument that Bank of England independence has been effective in anchoring inflation expectations at a low level. Further, we show that gold also lost its role as a stock market hedge and its position as a safe haven investment following March 2009, suggesting that the introduction of Quantitative Easing markedly changed the relationship between gold and the stock market.

Item Type:	Working paper
Creators:	Zhu, Y., Fan, J. and Tucker, J.
Date:	March 2016
Divisions:	Schools > Nottingham Business School
Record created by:	Linda Sullivan
Date Added:	17 Feb 2017 16:29
Last Modified:	07 Sep 2017 15:16
URI:	https://irep.ntu.ac.uk/id/eprint/30220

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