Interdependence among the prices pf precious metals, oil price and the stock marlet

Abstract

In this study, I examine the interdependence among the prices of precious metals, the oil price and the stock market. I provide evidence on the dynamics among the above variables for data covering April 2nd, 1990 to July 4th, 2021. The precious metals tested are the most known and used— gold, silver, platinum and palladium. As for the oil price, I gathered the prices of the West Texas Intermediate. The indexes tested are the Dow Jones Industrial Average index (DJIA), the S&P500 (SPX), the French stock market index, CAC40, the Financial Times Exchange Market 100 index (FTSE100) and the Japan stock market index, NIKKEI225. In this analysis I tested the interdependence among all the above variables. It should be mentioned that all regressions and analysis have been done on the Gretl open-source statistical package. The model used was the Vector Autoregressive Model (VAR). The variables in total were 10, therefore I run 5 VARs in order to check the influence each variable has for the other. In particular, all models consist of the WTI price, all precious metal closing prices and one index price. From VAR_1 to VAR_5 the indexes are contributed as followed, CAC40, DJIA, FTSE, NIKKEI225 and SPX. The results show that there is a degree of interdependence between the precious metals. Platinum and palladium, in particular, showcase a Granger Causality with most of the variables if not all. There is a stronger correlation among silver and gold, whereas oil exhibits various behaviors. Oil presents Granger Causality with oil itself and platinum. Furthermore, it does not influence any other of the variables in the Variance Decomposition test. To be specific, the influence is minor. As for the indexes, most of them do not show an influence by the rest of the variables.