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THE ROLE OF MACRO-ECONOMIC FACTORS IN SHAPING THE CORRELATION BETWEEN OIL AND GOLD PRICES IN GLOBAL MARKET
ALSHARIF, LEEN
ALSHARIF, LEEN
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Abstract
This dissertation examines the complex interplay between oil and gold prices in the global market, with a specific focus on the role of macroeconomic factors in shaping their correlation. The main aim of this study was to understand how key macroeconomic variables, such as inflation trends, geopolitical events, exchange rates, and stock market performance, influence the dynamic behavior of these two crucial commodities. The study used a quantitative methodology employing panel data from 1990 to 2023. A Dynamic Conditional Correlation Generalized Autoregressive Conditional Heteroskedasticity (DCC-GARCH) model is employed to analyze the co-movements of oil and gold prices, complemented by causality tests to ascertain lead-lag relationships. Fixed and random effects models are also employed to assess the impact on GDP growth. The results reveal a non-linear relationship between oil and gold prices, sensitive to prevailing macroeconomic conditions. Lending interest rates, real effective exchange rates, and real interest rates demonstrate statistically significant impacts on GDP growth. The influence of oil prices exhibits variation contingent on a country's economic structure and energy dependence, while gold often acts as a safe haven asset. The Hausman specification test supports the use of fixed effects models, while diagnostic tests confirm the presence of heteroscedasticity. In short, the dissertation provides a comprehensive analysis of the interplay between macroeconomic factors and oil-gold price correlations, offering valuable insights for investors, policymakers, and analysts. The findings underscore the importance of considering multiple macroeconomic influences when assessing the relationship between oil and gold prices and highlight the need for flexible strategies to manage risk and navigate economic uncertainty.