Gold Price Dynamics Around the Clock

Abstract

In this thesis we examine intraday behaviour of gold prices in the 24 hours day. We make a distinction between eastern world (China, India) and western world (US, Europe). We suspect that the intraday pattern may be affected by two factors: (i) large gold imports by eastern countries and (ii) manipulation of the London Gold Fix. We find a hat-shaped intraday seasonality, with gold appreciating during eastern trading hours in a robust way and depreciating for the rest of the day. Additionally, in the years of alleged manipulation gold prices drop around the London fixing times. In a multivariate regression analysis we find that East and West returns respond differently to the same shock, which means that eastern and western clienteles react asymmetrically in their gold consumption choices. Lastly, we backtest trading strategies trying to exploit the pattern. When transaction costs are not taken into account they outperform the market, with Sharpe ratios as high as 1.61. When taken into account, trading strategies underperform the market, but still show some profitability.