The Effects of Economic News on Commodity Prices: Is Gold Just Another Commodity?
IMF Working Papers, July 1, 2009
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- The Effects of Economic News on Commodity Prices: Is Gold Just Another Commodity?
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Bibliographic details
- Authors: Shaun K. Roache, Marco Rossi
- Published: July 1, 2009
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451872873.001
Summary and main findings
- The paper uses an event study methodology to investigate which and how macroeconomic announcements affect commodity prices.
- Gold is unique among commodities:
- Prices react to specific scheduled announcements in the United States and the Euro area (such as indicators of activity or interest rate decisions).
- These reactions are consistent with gold's traditional role as a safe-haven and store of value.
- Other commodity prices, when significantly affected by macroeconomic news, exhibit pro-cyclical sensitivities.
- Pro-cyclical sensitivities of other commodities have risen somewhat as commodities have become increasingly financialized.
- Implication: results are important for frequent traders in commodity markets and for long-term market participants who base decisions on price fundamentals reflected in macroeconomic announcements.
Methodology
- Event study methodology applied to scheduled macroeconomic announcements.
- Focus on announcements in the United States and the Euro area that signal activity or interest rate decisions.
Policy and market implications
- Market participants should consider the asymmetric role of gold versus other commodities when reacting to macroeconomic announcements.
- Trading strategies and risk management should account for:
- Gold’s sensitivity to activity and interest-rate-related announcements consistent with safe-haven behavior.
- Increasing financialization of commodities leading to stronger pro-cyclical responses in non-gold commodity prices.
- Long-term investors relying on fundamentals should incorporate the timing and content of scheduled macroeconomic releases into price assessments.
Disclaimer noted in the source
- "This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate."
Source: The Effects of Economic News on Commodity Prices: Is Gold Just Another Commodity? (IMF Working Paper No. 2009/140).