Abstract
This study examines the dynamic connectedness between three identified structural oil price shocks and the gold price based on the time-varying parameter vector autoregression (TVP-VAR) combined with the spillover's measures of Diebold and Yílmaz (2014). The three oil shocks are disentangled using the recent procedure of Ready (2018), which allows one to identify oil supply, oil demand, and oil risk shocks. Using daily data covering the period between January 2, 1997 and January 30, 2019, the results reveal a weak average of the total dynamic connectedness between the oil price shocks and the gold returns, manifesting sudden upsurges during turmoil periods. We also find that the oil supply shocks are the dominant transmitter of the time-varying spillovers from oil to the gold market, followed by the oil risk shocks, while the oil demand shocks are a net receiver of the spillovers from the gold market. Performing further analysis, we did not find any asymmetric patterns of dynamic connectedness between the oil shocks and the gold returns, regardless of the signs of the oil shocks. Besides, the results indicate a significant effect of the economic policy uncertainty on the connectedness between the oil shocks and the gold market in both the static and regime-switching framework. These findings have important implications for investors in regard to the hedging and safe-haven properties of gold against the identified oil shocks.
•We examine the dynamic connectedness between identified oil shocks and gold returns.•TVP-VAR model with the spillover measures of Diebold and Yılmaz (2014) are employed.•Weak connectedness between oil shocks and gold with upsurges during turmoil periods.•Oil supply shocks are the dominant transmitter of spillovers from oil to gold.•Economic policy uncertainty affects significantly the dynamic connectedness.