Finance Discipline Group
UTS Business School
University of Technology, Sydney

Working Paper Series

A Gold Bubble?
Author(s): Dirk G. Baur and Kristoffer Glover
Date of publication: October 2012
Working paper number: 175
In this paper we use a test developed by Phillips et al. (2011) to identify a bubble in the gold market. We find that the price of gold followed an explosive price process between 2002 and 2012 interrupted only briefly by the subprime crisis in 2008. We also provide a theoretical foundation for such bubble tests based on a behavioural model of heterogeneous agents and demonstrate that periods of explosive price behaviour are consistent with increased chartist activity in the gold market. The identification strategy yields economically intuitive results and is a simple alternative to using more complex estimation techniques commonly used in the heterogeneous agents literature.
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Known citations:

Beckman, J., Berger, T. Czudaj, R., 2014, "Does Gold Act as a Hedge or a Safe Haven for Stocks? A Smooth Transition Approach", Economic Modelling, 48, 16-24.

Bodington, L., "Gold in the South African Market: A Safe Haven or Hedge?", Masters Thesis, School of Economic and Business Sciences, University of the WitwatersrandRG

Bialkowski, J., Bohl, M. T., Stephan, P. M. and Wisniewski, T. P., 2015, "The Gold Price in Times of Crisis", International Review of Financial Analysis, forthcoming.

Lucey, B. and O'Connor, F. A. 2012, "Do Bubbles occur in Gold Prices? Evidence from Gold Lease Rates and Markov Switching Models", The Institute for International Integration Studies Discussion Paper Series, 418, IIIS.

Zhao, Y., Chang, H., Su, C. and Nian, R., "Gold Bubbles: When are they Most Likely to Occur?", Japan and the World Economy, 34-35, 17-23.