distinct to be considered as a single asset class and represented by an index, which is
contrary to the arguments of Gorton and Rouwenhorst (2006).
Focusing on individual precious metals, we find that gold is largely affected by monetary
variables, such as the term premium and money supply. It can be argued that this finding
is largely consistent with the notion that gold can be regarded as a financial asset, perhaps
acting as a surrogate currency, and hence, its price movements are sensitive to the actions
of monetary authorities (or central banks).
We also detect significant dependency in the conditional volatility of gold prices on its
own lags, which is of course consistent with the ARCH effects documented and well
known in the financial literature. In fact this phenomenon is also observed in the other
precious metal prices. Furthermore, there is evidence of volatility spillover from silver
prices to gold markets indicated by the significant test statistics on the lagged silver
conditional volatility variable. The results for the palladium markets are similar to those
for gold with volatility spillover from lagged gold series to palladium. We find that
conditional volatilities of financial variables, both S&P 500 and its dividend yield, as
well as money supply are significant as determinants of the volatility of palladium prices.
The findings for platinum and silver present a different picture. Specifically, we find that
none of the macroeconomic variables usefully explain the volatility structure of these
precious metals. This is particularly interesting for silver since prior empirical research
argues that silver has significant economic uses and can be considered an industrial metal
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