The Macroeconomic Determinants of Volatility in Precious Metals Markets

The Macroeconomic Determinants of Volatility in
Precious Metals Markets

Jonathan A. Batten, Cetin Ciner and Brian M. Lucey

Jonathan A. Batten

Graduate School of Management, Macquarie University

CBD Campus Level 6, 51-57 Pitt St

Sydney, NSW 2000, Australia

Tel: ++61-2-8274-8344, Fax: ++61-2-8274-8370

Email: [email protected]

Department of Finance

Hong Kong University of Science & Technology

Clear Water Bay, Kowloon, Hong Kong

Tel: ++852-2358 8202 Fax: ++852-2358 1749

Email: [email protected]

Cetin Ciner

Cameron School of Business

University of North Carolina- Wilmington

Wilmington, NC, USA

Tel: ++1- 910-962 7497 Fax: ++1- 910-962-3922

E-mail: [email protected]

Brian M Lucey

Trinity College, Dublin - School of Business and Institute for International Integration
Studies,

The Sutherland Centre, Level 6, Arts Building, Dublin 2, Ireland

Tel: +353 1 608 1552 Fax: +353 1 679 9503

Email: [email protected]

Date: 1st June 2008

JEL: C32, G10, Q40

Keywords: Commodity prices; Gold; Macroeconomic factors; Silver; Volatility

Abstract

We investigate key macroeconomic factors that impact the price returns of precious
metals markets. The markets investigated were gold, silver, platinum and palladium;
whereas the macroeconomic factors accommodated business cycle, monetary
environment and financial market sentiment factors. The key findings present limited
evidence that the same macroeconomic factors jointly influence the volatility processes
of the precious metal price series, although there is some evidence of volatility feedback
between the precious metals. This finding lends weight to views that individual
commodities are too distinct to be considered a single asset class or represented by a
single index; a finding of considerable importance for portfolio managers and investors.

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