Interdependence amongst gold, crude oil and dollars in the global economy.

Insight, The Annual Business, Finance, and Economics meet of Narsee Monjee College of Commerce and Economics, Mumbai has been fabricated with the main motive of bridging the gap between the youth and the corporate world.

To inculcate practicality to the theoretical knowledge, Insight conducts 3 main avenues- Competitive events on the lines of Business, Finance and Economics, Business Conclaves and The Global Youth Economic Summit.

One such competitive event at Insight this year was Symposium – The research paper competition, wherein participants had to research upon the topic ‘The Interdependence amongst Gold,’ ‘Crude Oil’ and ‘Dollars in the global economy,’ and come up with a detailed paper on it.

The sustained rise in the linkage between the global markets parallel to the unification of international financial markets have increased the momentum of commodity markets financialization and made the stock markets, commodity markets and foreign exchange markets more subtle, and this linkage is also noticeable in commodity markets and financial markets with their most important representatives i.e Oil, Gold, and USD.

Today as we know gold and crude oil are predominantly quoted in dollars, the first connection was between gold and crude oil when the producers of crude in the Middle East exchanged crude oil for gold. But after being pegged to USD, the relationship between the two is no longer determined only by the level of payments.

The aim of this study was to identify the interdependence of Oil, Gold, and USD in the global economy and we can summarize the empirical findings into some main points:

Gold price, crude oil, and dollars have a significant association for a short-term correction. It can be concluded that there are mutual long-term association among all the three variables undertaken for the study existing but the degree of association is weak. Our findings show the evidence of factual effect as well as significant interactions among oil price, gold price, USD and stock prices. Indeed, we found that oil price is affected by gold and USD. Oil price is also affected by oil futures price and by Chinese oil gross imports. Gold price is concerned by changes in oil, USD and stock markets but slightly depend on US oil imports and default premium. The USD exchange rate is significantly affected by oil price, gold price. Indirect effects always exist which confirm the presence of global interdependencies and highlights the financialization process of commodity markets. We explain the obtained results by the increased use of oil and gold as financial assets either for speculation or hedging, which intensifies direct and indirect ties between all the markets and thus confirms that the performance of these markets become dependent between each other.

Winners –

Palak Modi and Hardik Lohiya

Narsee Monjee College of Commerce and Economics, Mumbai