CHAPTER II

REVIEW OF LITERATURE

Though the prices of Gold in are largely dependent on large number of

factors such as its production, demand, substitute investment avenues etc.
yet there also exists influence of different global macroeconomic factors
on the prices of Gold.. Keeping in view the significance of the global
economic factors on the prices of gold, number of studies has been carried
out across the world thus; there is an availability of ample literature in this
regard.

I. ASSOCIATION BETWEEN GOLD PRICE AND VARIOUS

ECONOMIC FACTORS

A. INFLATION

Kolluri (1981) found the existence of association between gold price and
inflation rate which can be utilized for hedging and other activities.
Sherrman (1983) employed multiple regression to explore the important
determinants of gold prices wherein he found that tension index, interest
rate, the US trade weighted exchange rate, the GDP, the excess liquidity
and the unanticipated inflation are significant determinants of gold price
with serial autocorrelation.

When he tried to overcome it some variables like tension index become

insignificant while other like unanticipated inflation became insignificant.
Moore (1990) in his empirical studies found negative correlation between
gold price and stock/bond markets.

McCann et al. (1994) developed a forecasting mechanism based on a

simple recurrent neural network to discover turning-points in the gold

21
price so as to determine whether to take long or short position in the gold
price.

B. FOREIGN EXCHANGE MARKET

Dooley, Isard and Taylor (1995) in their several empirical studies found
that gold has explanatory power in predicting movements in exchange
rates in addition to the movements in monetary fundamentals and other
variables that enter standard exchange rate models.

Sajaastad and Scacciallani (1996) examined the relationship between the

gold price and foreign exchange market for the period 1982-1990 wherein
they found significant influence of change in European currency on the
prices of gold where less influence of US dollar. They also found that
among major currencies fluctuations in the real exchange rates explain
almost half of the variation in the gold price

C. STOCK PRICES

Graham (2001) found the existence of short term interaction and long term
equilibrium gold prices and stock prices. Accordingly there is no long run
relationship between the gold price and stock price but in short run stock
price affect gold price.

D. DEMAND

Kannan et al. (2003) studied the various factors affecting demand for gold
in India and concluded that gold has inverse relationship with its price and
is positively related with income further they also found that financial
wealth induced by medium term trends in equity prices has a positive
impact on gold and real yield on government bonds have inverse
relationship with gold demand.

E. THE DOLLAR

22
Exploring the alternative to the US Dollar Kumar (2005) found that
though Dollar plays a key role in storing wealth and a medium of
exchange still if people suspect that the dollar may be vulnerable they may
sell dollar and look for something more secure like other currencies or
Gold. Levin et al. (2006) covering the period of 1975-2006 proved the
existence of a long run relationship between the gold price and the average
price level in US.

Employing co integration test to analyse the long run relationship & error
correction models to test short run dynamics they found that in a short run
the main determinants of gold price are US inflation, inflation volatility,
credit risk, the interest rate to lease gold and the US trade weighted
exchange rate. Their studies also proved that 66% of a deviation of the
long run relationship will disappear within five years after the shock that
caused deviation.

F. POLITICAL RISKS

This research was an extension & value addition to the study ‘Political risk
in oil producing countries’ conducted by Ghosh et al. (2000) Wang et al.
(2010) examined the oil price, gold price, exchange rates of dollar in
contrast with currencies and stock markets of Germany, Japan, Taiwan,
China, and USA.

The empirical results found co-integration and long-term stable

relationship among these variables in the mentioned countries except
USA. Nevertheless, there is no co-integration and long term stable
relationship among these variables in USA. Mishra et al. (2010) analysed
the causality relation between domestic gold prices and stock returns in
India.

Employing Granger Causality in Vector Error Correction Model they

found that gold prices granger causes stock returns in India & stock
returns also granger causes gold price in India during the sample period

23
January 1991 to December 2009. A. Karunagaran (2011) found that in
wake of financial crisis in 2008 central banks of emerging and advanced
economies started accumulating gold as a part of reserve management by
either buying fresh stock of gold or by stopping selling of their existing
stocks of gold. Sujit et al. (2011) investigated dynamic relationship among
gold price, stock returns, exchange rate and oil price covering the period
January 1998 to June 2011. Using Vector autoregressive and Co-
integration technique, they found that exchange rate is highly affected by
changes in other variables whereas stock price have fewer role in affecting

G. THE MAJOR ECONOMIES

There are many studies investigating the price of gold in the literature.
Although various different variables are used in these studies, it is
observed that gold prices are regressed against USA dollar and stock
return in general. Abken (1980), under the assumption of rational gold
market, investigated how fast and at which direction the market responds
to a new information, and whether the gold prices reflect the current
information or whether time is needed to see the effects.

For this purpose, gold prices are taken as endogenous variables and lagged
values of gold prices and interest rates is taken as exogenous varibles in a
regression anaylsis. Monthly data between 1973- January and 1979-
December show that the explatoriness ratio of the regression equaliton is
low. When similiar relationship is seeked between future prices and future
spot prices, the explatoriness ratio improves significantly. Koutsoyiannis
(1983) found that the gold prices are affected by the USA economy rather
than woldwide economic conditions.

It is stated that US dollar is the Exchange rate providing the international

liqudity, gold prices are expressed in US dollars and raw oil prices are
quoted in US dollars. Therefor, a negative raltionship between US dollar
and gold prices are found. Another study investigating the relationship

24
between gold prices and Exchange rates are made by Dooley et al. (1992).
Monthly data between 1976–1990 is used to search USA, UK, France,
Germany and Japon curriencies. After bulding a VAR model, it is found
that the parity between US dollar and the other currencies explain the
changes in gold prices.

Dooley et al. (1995) excluded the data of France and stated that the new
findings coincide with the former study. Harmston (1998), tested the
relationship between UK, USA, France, Germany and Japon purchasing
power parity and gold price fluctuations between 1870 and 1996. Results
show that fluctuations are seen in the gold prices due to country crises and
global crises but gold keeps its purchasing power being used a store of
value.

Christie-David et al. (2000) followed the news reports for 23 months

between 1992 and 1995 in order to show the effects of macroeconomics
news reports on gold prices. In this study, newsletters of vaious
macroeconomic variables, lagged values of local government bonds,
future prices of gold and silver is used. Consequently, it is found that all
the precious metal instuments are affected positivle by news about
capacity use rate. Gold prices affected the news about producer price
index, consumer price index and GDP and both gold and silver prices are
affected by the news about unempolyment ratio.

Moreover, it is observed that news about budget deficits have no

significant effect on gold prices. Smith (2001) investigated the relationship
between gold price and stock exchange price index using daily, weekly
and monthlt data begining from 1991 to 2001. Four gold prices and six
stock exchange indices were included in the study.

A short run relationship was observed in the relavant period between gold
price and stock exchange price index. Smith (2002), in a further study,
used the data between 1991 and 2001 in order to determine the short run

25
and long run relationship of gold price and stock exchange prices. Three
gold price values taken from London Stock Exchange at 10.30, 15.00 and
end of day C.Toraman - C.Basarir - M.F.Bayramoglu Business and
Economics Research Journal 2(4)2011 39 and 18 different stock exchange
index, Japan, United Kingdom, Germany, France, Swiss, Netherlands,
Italy, Spain, Sweden, Belgium, Finland, Denmark, Greece, Portugal,
Norway, Austria, Turkey and Ireland, were tested.

While a weak and negative relationship was found between gold prices
and stock exchange prices in the short run, no significant relationship was
observed in the long run. Another study was made by Ghosh et al. (2002)
using monthly data between 1976 and 1999 investigating the affects of
worldwide inflation level, USA inflation level, woldwide income, value of
US Dollar and random shocks on gold prices with a VAR model.

It was concluded that gold prices are related with US Inflation level,
interest rates and dollar exchange rate. Furthermore, a long run
relationship was found between gold prices and US Consumer Price Index
as a result of the co-integration analysis. Vural (2003) tested the sensitivity
of gold prices among various variables (USD/Euro parity, Dow Jones
industRial production index, oil prices, interest rates, silver and copper
prices) building a multivariate regression model using monthly data
between 1990 and 2003. As a result, gold prices were positively related
with silver, oil and copper prices; negatively correlated with interest rates,
USD/Euro parity and Dow Jones industial production index.

Tully and Lucey (2007) used and APGARCH model in order to

investigate affects of some macroeconomic variables on gold prices. In the
1984- 2003 period, a relationship was found between daily and future
prices of gold and US Dollar. Sjaastad (2008) investigated the relationship
between and forward gold prices and exchange rates. Spot and forward
exchange rates between US Dollar, GB Pound, Japon Yen and Deutche

26
Mark were included in the study and a high positive relationship was
found between spot and forward prices.

While the European Money Market was dominant in the Gold Price
Market in 1990’s, later US Dollar played leading role. In addition, gold
manufacturer countries like Australia, South Africa and Russia were found
to have no significant affect on gold prices. Furhermore, while previous
studies stated that gold was not a store of value against woldwide
inflation, conversly in this study gold was suggested a store of value.
Öztürk and Açıkalın (2008) found a long run relationship between gold
prices and consumer price index with a Granger Cointegration test using
monthly data between 1995 and 2006.

Topçu (2010) examined the relationship between gold prices and Dow
Jones industrial production index, US Dollar exchange rate, oil prices, US
Inflation rate, Global Money Supply (M3) from 1995 to 2009. As a result
of the multivariate regression analysis, returns of Dow Jones industrial
production index and US Dollars positively affect the return of gold; and
global Money supply negatively affects the return of gold.

While a positive relationship was found between the return of oil prices
and inflation and the return of gold, no statistically significant evidence
was found. Similarly, a positive relationship was found between the price
of gold and interest rates were found but, no statistically significant
evidence was found.

H. MACRO ECONOMIC FACTORS

There have been many financial and economic literatures which study the
macroeconomic factors that affect the price of gold. Sherman (1983)
provided the first model of the gold price that sought to conclude about its
relationship with inflation. However due to lack of theoretical clarity in
the choice of variable included his attempt at modeling the gold price
needed significant improvement. Similarly, Moore (1990) emphasized that

27
many individuals invest in gold as a hedge against inflation. Based on the
ratio of the current month's leading index to the average level of index
during the proceeding twelve months, a six-month smoothed growth rate
was employed.

In Larsen and McQueen's view (1995), the relationship between gold and
unexpected ination was concluded weak. It was based on their ndings that
the coefficient of unexpected ination is signicant and positive while F-
statistic remains insignicant. Exchange Rate affecting gold prices was
studied by Capie et. Al (2005).

A relationship between the gold price and US dollar was drawn. Gold was
concluded as a Hedge against the US Dollar. The relationship between
gold and the exchange rates against the US dollar over the whole periods
of years from 1971 to 2002 was explored using number of statistical tools.
It was found that the US dollar gold price moves in opposition to the US
dollar. David Hiller, Paul Draper, and Robert Faff (2006) analysed the
daily data for gold, platinum and silver from 1976 to 2004 to investigate
the investment role of these metals in the nancial markets.

It was seen that these metals have low correlations with stock index
returns. Also, it was seen that during periods of abnormal stock market
volatility, these metals have some hedging capability. In the Dalal Street
Journal, Sashikant Singh has carried out research on how investing in
Gold ETF's has started gaining popularity. It has been seen that investing
in gold ETF's is less cumbersome and risky than the other means.

Dirk Baur and Thomas Mc Dermott (2009) investigated whether gold

represents a safe-haven with respect to stocks of major and developing
countries. The correlations between gold returns and stock market returns
in 13 countries over the past three decades were investigated. It was
concluded that gold is generally a hedge and safe-haven for stocks in
developed markets, but not in emerging markets. Natalie Dempster and

28
Juan Carlos (2009) studied the interrelationship between four asset classes
namely Gold (represented by closing gold rate in New York),
Commodities (represented by S&P, GSCI), Real estate (represented by
BBREITs) and Treasury Bills (TIPS).

It was concluded that gold is more effective than the other three assets at
achieving both the maximum risk- reward portfolio and minimum-
variance portfolio by using a portfolio optimizer. It was also found that
gold brings additional diversication to the portfolio comprising of the
above three assets.

Artigas (2010) found that money supply growth has an impact on future
gold performance. It was demonstrated that changes in the United States
money supply has the largest impact on the price of gold. On the other
hand, it is very important to look through the changes in money supply in
countries where gold has a preeminent cultural role like India.

I. DOMESTIC AND GLOBAL PRICES CLOSELY INTER

RELATED

Mishra et al. (2012) found that both domestic and global gold prices are
closely interrelated. They also examined the nature of changes in the
factors affecting international gold prices during the last two decades
wherein they found that short-run volatility in international gold prices
used to be traditional factors such as international commodity prices, US
dollar exchange rate and equity prices.

More recently, Ray et al. (2013) examined causal nexus between gold
price and stock price for the period 1990-90 to 2010-11. Employing
Granger causality test they confirmed the presence of uni-directional
causality which runs from gold price to stock price. The relationship
between gold prices and various domestic and international economic
factors is strongly supported by the above literature thus provides basis for
further research in this regard.

29
J. EXCHANGE VALUE OF US DOLLAR

The Relationship between Gold Prices and Exchange Value of US Dollar

in India Girish Karunakaran Nair Nidhi Choudhary Harsh Purohit I.
Introduction Indians consider the yellow metal as an object of luxury
believed to be worthy for only gods and rulers. The metal is a symbol of
wealth, supremacy, beauty, and cream of the crop and holds immense
religious magnitude in Indian culture.

Indians are known for their love for gold. The jewelry demand for the
metal is highest in India. The country consumed 864 Tones of metal in
2012 in the form of jewellery, bar and coins only (PWC, 2013) such high
consumption statistics clearly show that the prices of gold is an important
issue for the Indians. The reverse relationship between the value of U.S.
dollar and that of gold is one of the most discussed about relationships in
currency markets.

Dollar is an internationally accepted currency and most of the international

transactions take place in dollar equivalent. The major reason behind the
relationship of gold and USD INR exchange rate is that gold is used as a
hedge against the adverse exchange value of dollar. As the dollar’s
exchange value decreases, it takes more dollars to buy gold, which
increases the value of gold.

The value of dollar can be at a potential risk of fluctuation through various

factors like shifts in monetary policy, international trade, etc., but the
value of yellow metal is largely determined by supply and demand,
without interference from shifts in monetary and corporate policies. The
relationship of gold and dollar is traced back to international history,
history of Gold and Dollar Relationship After the First World War, nations
attempted to revive the gold standard for international exchange rates, but
the system soon collapsed with the arrival of the Great Depression of the
1930s. Some economists were of the view that the strict obedience to the

30
gold standard had prevented monetary authorities all over the world from
increasing the money supply to match the growing demand for money
which could have been enough to revive economic activity.

Soon after the end of the Second World War, representatives of most of
the world's leading nations met at Bretton Woods, New Hampshire, in
1944 to create a new international monetary system. United States had
emerged as politically strong nation on the winner side after the war. It
was the world leader in terms of manufacture capacity and accounted for
over half of the world's capacity.

The nation also held most of the world's gold at that time. Therefore, the
leaders decided to tie world currencies to the dollar, which, in turn, they
agreed should be convertible into gold at a fixed exchange rate of $35 per
ounce. This was known as the Bretton Woods System. The system
required the central banks of countries other than that of United States to
maintain a fixed exchange rate between their currencies and the dollar.

The US Dollar could be internationally exchanged for gold. The central

banks had to accomplish this task by intervening in foreign exchange
markets. If the exchange value of a country's currency was too high
relative to the dollar, its central bank would sell its currency in exchange
for dollars, which will make the value of its currency to sink down.
Conversely, if the value of a country's money was too low, the country
would buy its own currency, thereby driving up the exchange value.

The Bretton Woods system successfully lasted until 1971 but the problem
arrived when the high rate of inflation and growing trade deficit of USA
were undermining the value of the dollar. During the same period,
Germany and Japan had favorable balance of payments because they had
high volumes of exports. The United States asked the two nations to
appreciate their currencies. But the two nations were reluctant to do so as

31
appreciation of their currency would hurt their exports as it will increase
the prices of their goods making them internationally incompetent.

With the passage of time, the situation in USA went from bad to worse
and worst. Finally the Bretton Wood’s system was terminated by the then
US President Nixon. Now, the USA adopted the ‘floating’ exchange rate
system for USD against other currencies and abandoned the fixed
exchange rate system. The exchange value of dollar promptly fell. This
alarmed the world leaders who maintained high reserves of Dollar
thinking it to be exchangeable for gold.

Many countries sought to resuscitate the old Bretton Woods system and
proposed the Smithsonian Agreement in 1971 which was similar to
Bretton Woods system, but the effort failed. By 1973, various nations,
including USA adopted the floating exchange rate system for their
currencies. Hence, now the dollar was no more equivalents to gold at a
fixed rate but this psychology still persists. This intrinsic co-relation
between gold prices and the US dollar still continues.

Whenever the US devaluates the dollar in international market, bankers,

investors and traders from all over the world hedge against this adversity
by investing in gold. This measure helps them protect the value of their
money. The increase in investment demand of yellow metal consequently
increases the value of gold. Though the legal connection between gold and
USD ended with the Bretton Woods, the current study is an attempt to
know if technically any such relationship is still existing in Indian context
and what has been the impact of global recession on this relationship.

The yellow metal has emerged as an important alternative asset only after
the equity markets. All over the world the investment demand for gold has
surged to new levels when the equity markets were not spared by the
global crisis. The performance of the metal has been the area of interest

32
for various academicians and media especially when the gold prices have
out perform in recent times.

A lot of existing recent literature is available about the relationship

between exchange rate of US dollar with respect to the various currencies
and gold prices in those nations. In one of the studies by (Apak, Akman,
Çankaya, & Sönmezer, 2012)the influence of exchange value of various
currencies on the prices of gold was analyzed. This study involved
currencies of countries that are the leading gold exporters and importers to
explain the price fluctuation in gold prices. India, China, Turkey, Russia,
USA, Indonesia, Euro zone countries, Switzerland and UK are among the
top gold demanding countries whereas, China, Australia, USA, South
Africa, Russia, Canada and Indonesia are among the significant producers
in World gold production according to various reports of World Gold
Council.

Further, a subset of alternative assets including bond returns, return on oil

prices, silver prices, and credit default swaps of some emerging countries
are used. The study employed the GARCH (1,1) model and provided the
evidence that return of silver, USD and change in the equity volatility
index influences gold returns positively whereas, Swiss Franc and
Canadian Dollar returns influence gold returns negatively regardless of the
2008 recession crisis. In another study, (Omağ, 2012) in analyzed the
relationship of yellow metal with few financial variables like inflation,
exchange rate of home currency to US Dollar and return on few
government securities in Turkey. The most influential factor impacting the
gold prices in Turkey is exchange value of home currency to USD.

However, the other factors have small but statistically significant impact.
He commented that gold is an important precious metal in the economy
and the recent recession has increased its investment demand. Therefore,
the flow of funds in the financial system has been impacted by effects of
gold trading as the metal has emerged as an important alternative

33
investment tool after the recent recession. In another study, (Kiohos &
Sariannidis, 2010) tried to comment on the influence of energy and
financial markets on the gold market in short run.

They used crude oil prices an indicator of energy market and equity,
currency and exchange rate of U.S. dollar to yen as the indicator of
financial markets. In their study, the two used a GJRGARCH model to
study these relationships for daily data for 10 year period (January 1, 1999
to August 31, 2009). The study concluded that the exchange rate of U.S.
dollar/yen has the most significant impact on the gold prices. (Sjaastad,
2008) used the technique of forecasting error data to study the relationship
between price of gold and exchange rate of major currencies. The study
was both empirical and theoretical in nature. It concluded that after the
cessation of the Bretton Woods system, the evolution of floating exchange
rates for various currencies has been a strong reason behind instability in
gold prices. The most influential currency in this respect has been US
Dollar.

The appreciation or depreciation of US Dollar has been a very important

factor in determining the gold prices. (Tully & Lucey, 2007) investigated
the relationship between gold prices and exchange rate of US Dollar. They
used six different models of GARCH family in their study. Their analysis
concludes that an APGARCH model is best fit model for the datasets used
in the analysis which included data for various economic variables over
the 1983–2003 period and both spot and average futures prices of gold.

The study provided a especial reference to the equity market crash of 1987
and 2001. The study confirms that the though few macro economic
variables have a statistically significant impact on gold prices, the
exchange rate of domestic currency to US dollar is the main and important
factor which has a strong impact on gold prices. In another study, (Capie,
Mills, & Wood, 2004) used weekly data for last thirty years for spot prices
of gold, exchange rate of Great Britain Pound and Japanese Yen to US

34
Dollar to understand up to what extent gold has acted as a hedge against
exchange rate adversities.

The study used GARCH model for the analysis. They concluded that
relationship between gold and exchange rates of the currencies to USD is
inelastic and negative. But the nature and the strength of this relationship
has shifted over time.

The hedging property of yellow metal is highly dependent on political

events and political uncertainty. (Capie, Mills, & Wood, 2005) in their
study on Gold as a Hedge against the US Dollar did a detailed analysis
about if gold is a perfect hedge against US dollar. They collected abundant
data for spot prices of gold and the exchange values of currencies from the
London markets. They ensured that exchange rate and gold price data
were of same day.

They checked the relationship of gold with various currencies not only for
the entire period but also for various sub periods. The study concluded that
gold is a good hedge against adverse exchange value of US Dollar to
home currency. The study provided for various statistical evidences for
their claims. In another study (Sinton, 2014), examined the long term
association and causality between gold prices, stock indices and U.S
Dollar exchange rate in Jakarta.

The study used the Johansen Co-integration Analysis for the study and it
concluded that there exists no long term association between the variables
under study. In another study in Indian context, (Bhunia, 2013)
investigated the long term association between crude oil prices, gold
prices, US Dollar exchange rate and stock price indices in India.

The study also used Johansen co-integration and granger causality test and
indicated that there exists a long term association between the variables
under study. The study further stated that there is a bi directional
relationship among the variable under study.

35
However, the study has not segregated the duration of the global financial
crisis and included the data since January 1991 to October 2012 at a
stretch. On similar lines, (Arezki, Dumitrescu, Freytag, & Quintyn, 2012)
used the Johansen Co-integration and granger causality test to find the
flow of causality of movement in gold prices and foreign exchange rate in
case of prior and post capital account liberalization in South Africa.

The findings of the study indicated that the direction of causality was from
exchange value of Rand to gold prices in pre liberalization phase.
However, the flow of causality has revered in post liberalization phase.

The objective of the current study will be to understand the long term
association and the lead lag relationship between the gold prices and
exchange rate of US dollar in Indian economy in three phases: pre global
financial crisis, during global financial crisis and post the financial crisis.

II. IMPACT OF DISASTERS LIKE COVID ON GOLD PRICES

The COVID-19 outbreak has resulted in over 17.2 million confirmed cases
and over 670,000 deaths worldwide. This malignant virus has caused
severe damage not only to the global healthcare systems but also to the
world economy.

This pandemic has more negative repercussions than the global financial
crisis (GFC) in 2008 or even the Severe Acute Respiratory Syndrome
coronavirus 2 (SARS-COV-2). During the COVID-19 outbreak, oil prices
experienced a spectacular fall in April 2020.

The US crude futures fell to negative values, crashing from $18 a barrel to
-$38, for the first time in history, as stockpiles overwhelmed storage
facilities, which left oil investors reeling. On the other hand, gold prices
have experienced a smaller decline with the outbreak of COVID-19, but
this was followed by an upside trend starting in February 2020. Evidently,

36
the global uncertainty tied to this COVID-19 outbreak has significantly
perturbed the price dynamics of crude oil and gold.

The behavioral finance theory documents that investment decisions in

such uncertain periods are strongly affected by the investor sentiment. For
example, Icheck and Marine 2018 argue that the 2014–2016 Ebola
outbreak events combined with intense media coverage influenced
investors’ strategies significantly.

Commodity markets are vulnerable to not only the law of demand and
supply, macroeconomic variables (exchange rates and inflation, etc.), and
political events (Wang et al 2011), but also to pandemic factors (Icheck
and Marine 2018). The relationship between oil and gold can be explained
through inflation channel.

The general price level increases when the crude oil prices rise because oil
is a principal input of several goods and services therefore the cost of
production rises (Hunt 2006; Hooker 2002). When the inflation increases,
the gold price up since gold is also a good. Thus, gold can serve as a
protection instrument (or hedge asset) against inflation (Jaffe 1989). Melvin
and Sultan 1990 explain the linkages between gold and oil markets via the
export revenue channel.

Specifically, gold is an essential portion of the international reserve

portfolio of several economies, including the oil-producer economies. The
authors document that if some shock leads to expectations of official gold
purchases, the expected future price of gold will rise. When oil price rises,
oil exporters revenues from oil also rise. A vast empirical literature has
examined the relationship between oil and gold (Cashin et al 1999,
Lescarous 2009, Singhal et al 2019, Soytas et al 2009).

Therefore, the market dynamics show important variations during this new
pandemic that affect all the financial and commodity markets worldwide.
Accordingly, in this paper, we aim to examine the asymmetric multi-

37
fractality of both gold and oil prices using a high frequency dataset on
contract for differences (CFDs) covering periods both pre- and during
COVID-19 outbreak.

During the COVID-19 outbreak period, gold (oil) is more inefficient

during upward (downward) trends. It is worth noting that the inefficiency
degree for both markets is higher during the outbreak compared to the pre-
COVID-19 period. In summary, the efficiency of gold and oil markets is
sensitive to scales, market trends, and to the outbreak, highlighting the
investor sentiment effect. These results have implications for investors and
policy makers.

I. INCOME, WEALTH, AND DEBT

The Great Recession weakened the financial well-being of many families,

placing them at risk by destabilizing income-producing and wealth-
generating mechanisms (Friedline et al. 2014; Lee and Kim 2018;
Rauscher and Elliott 2016; Rhine et al. 2016). Families experienced
significant changes or disruptions to their income, wealth, and debt during
and after the economic downturn (Federal Reserve Bank of New
York 2019). One basic way that families attempted to establish and
maintain their financial well-being was through savings account
ownership (Rhine et al. 2016). Savings provide families with liquidity for
supplementing their income and making further investments. Those with
savings accounts were able to take better advantage of these assets for
buffering against some of the negative effects of the economic downturn
(Friedline et al. 2014); although, families who were positioned to take
better advantage of these assets benefitted from intergenerational wealth
transfers (Friedline et al. 2014; Rauscher and Elliott 2016).

One way families tried to maintain their financial well-being in response

to the Great Recession was through opening lines of credit and applying
for small loans. However, families’ participation in these types of wealth-

38
building and debt accumulation mechanisms was restricted to those who
were able to participate in lower-cost, higher quality financial services.
Instead, many families used higher-cost, lower quality financial services
like payday, installment, and auto title lenders. For example, households
with constrained credit were more likely to use payday loans than those
who were not (Lee and Kim 2018). In the years following the Great
Recession, many households reported that a payday loan was the only
option available to them (Lee and Kim 2018).

Families struggled to manage their debt during the economic downturn

and turned to public welfare for support (Kim and Wilmarth 2016). Public
welfare can help families avoid debt or help them to repay current debts.
Kim and Wilmarth (2016) found that 54% of the households receiving
public welfare were able to meet debt-to-income guidelines compared to
only 46% of households who were not receiving assistance, thus showing
the government’s role in helping households manage their debt especially
during an economic downturn. Some families had been accumulating debt
when the Great Recession began and were therefore more vulnerable. In
their exploration of the determinants of filing for bankruptcy, Bauchet and
Evans (2019) found that having higher credit card debt was positively
associated with filing for bankruptcy while having higher asset amounts
was negatively associated. Moreover, having educational debt from
student loans was negatively associated with filing for bankruptcy,
potentially highlighting that certain types of debt could have differential
effects on the likelihood of filing for bankruptcy.

There were also differences in income, wealth, and debt by race, class, and
gender identity (Malone et al. 2010; Rhine et al. 2016; Rauscher and
Elliott 2016). For example, compared to White families, Black and Latinx
families were less likely to own a savings account and had less access to
liquid assets like money market, mutual fund, or retirement accounts

39
(Rhine et al. 2016). Higher income households had more financial
resources to buffer them from income and wealth losses compared to
lower income households (Rauscher and Elliott 2016). Gender differences
in real wages also suggest that the Great Recession affected men’s and
women’s wages differently. Women spent more time on activities like
cooking meals and childcare than men (Kuehn 2016). Time spent caring
for children was consistently negatively associated with real wages, such
that more time spent caring for children resulted in a decrease in actual
wages (Kuehn 2016).

I. ECONOMIC HARDSHIP

Economic hardship, also referred to as material hardship, refers to

families’ inability to meet their needs such as food, clothing, and health
care (Mimura 2008; Rios and Zautra 2011). Closely related to poverty,
economic hardship is a multidimensional construct and has been assesssed
by a host of measures that go beyond traditional poverty measures that are
based primarily on income thresholds. Because the construct taps into
multiple, distinct dimensions of well-being (Iceland and Bauman 2007),
economic hardship has been frequently examined in the aftermath of the
Great Recession to gain nuanced understandings of families’ experiences.
Examples of economic hardship reviewed in the literature include food,
housing, health care, education, and bankruptcy, which together reflect
families’ difficulty in meeting their needs (Heflin 2016).

Many Americans experienced abrupt changes in employment, income, and

wealth during and after the Great Recession that were associated with their
economic hardship (Bauchet and Evans 2019; Deidda 2015; Heflin 2016).
For example, Heflin (2016) found that experiencing income losses and
having a person with disability join the household were associated with
hardships related to housing, health care, and other essential expenses like
food. Analyzing data from five European countries, Deidda (2015) found

40
that housing costs were a financial burden and were associated with
economic hardship, such as preventing families from spending money on
health care, education, food, and clothing. Findings from these studies
converge to suggest that many families lived in a time of financial
instability and were vulnerable to financial shocks. Changes in life
circumstances can easily place households at risk of experiencing
economic hardship, ranging from diffculty in covering basic needs to
filling for bankruptcy (Bauchet and Evans 2019; Deidda 2015;
Helfin 2016).

Economic hardship inevitably places stress on family relationships

(Masarik and Conger 2017; McCubbin et al. 1980), which can make some
more vulnerable to abuse and violence (Lucero et al. 2016;
Showalter 2016). Lucero, Lim, and Santiago (2016) examined the link
between economic hardship and intimate partner violence with a sample of
941 women in committed relationships. The longitudinal data analyzed in
this study allowed for an examination of economc hardship over a 10-year
timespan between 1999 and 2010 that included the Great Recession.
Continuously high levels of economic hardship over time elevated the risk
of intimate partner violence, implying that ongoing economic hardship can
be an additive stressor that subjects women to intimate partner violence.

J. FINANCIAL STRESS

Families experience financial-related psychological stress or distress when

they do not have adequate income, wealth, or debt to afford economic
hardship (Lai 2011; Park and Kim 2018; Thorne 2010; Sweet et al. 2013).
A concept that is related to well-being (CFPB 2015), financial stress arises
when families are unable to meet their current and ongoing financial
obligations. Financial stress is often operationlized as the physical or
mental health symptoms that arise from having difficulty meeting basic
needs, difficulty paying bills, and money leftover at the end of the month

41
(Afifi et al. 2018; Ponnet et al. 2016; Romo 2014; Valentino et al. 2014).
These indicators that measure the extent to which families lack the
financial resources to afford current or persistent obligations help to
explain why greater income and wealth are often associated with lower
financial stress (Lai 2011; Romo 2014; Valentino et al. 2014).

Financial stress presented differently among individuals within and across

families. Women, for example, experienced the effects of financial stress
by having poorer physical and mental health when compared to men (Afifi
et al. 2018; Lai 2011; Park and Kim 2018; Stein et al. 2013; Thorne 2010).
In heterosexual couples, women reported higher levels of stress and
anxiety than their partners in anticipation of having conversations about
money (Afifi et al. 2018). Women’s higher levels of financial stress could
have been partly due to the fact that they were responsible for managing
their households’ finances during economic hardship. Thorne (2010)
interviewed couples who were filing for bankruptcy, finding that women
were often solely responsible for financial decision-making during this
time and that they experienced severe stress. Overwhelmed with the
responsibilities of paying taxes and responding to creditors, one woman
prayed she would die during an upcoming surgery to escape her financial
stress, “I was to the point where when I went in for surgery, I prayed to
God that I didn’t wake up…I just didn’t want to come home…I wanted to
have an easy suicide” (Thorne 2010, p. 194).

There were also differences in financial stress across racial groups (Afifi
et al. 2018; Park and Kim 2018; Serido et al. 2014; Valentino et al. 2014).
For instance, White young adults exhibited higher rates of alcohol use and
heavy drinking in the presence of financial stress when compared to their
Asian, Black, and Latinx counterparts (Serido et al. 2014). In a study that
examined the communication patterns and stress levels of White and
Latinx heterosexual couples, Latinx couples often presented as a united

42
front, used humor, and blamed the Great Recession for their economic
hardship (Afifi et al. 2018). Couples that adopted these communication
patterns also exhibited lower cortisol levels. A study that examined
financial stress longitudinally found that Black mothers displayed higher
rates of financial stress over time, whereas White mothers’ stress was
stable yet persistent (Valentino et al. 2014). For White mothers, their
stress could be explained in part by their depressive symptoms. However,
depressive symptoms did not predict Black mothers’ stress (Valentino et
al. 2014), which might be better explained by disparities in income,
wealth, and debt (Hamilton and Darity 2017; Pfeffer et al. 2013) and could
indicate that popular scales validated on White populations are inadequate
for measuring Black women’s depression (Jones and Ford 2008; Watson
and Hunter 2015; Woods-Giscombé and Lobel 2008).

K. COPING STRATEGIES

Families experienced econonic hardship and mounting financial stress in

the post Great Recession era. A stream of research has investigated how
individuals and families coped with economic hardship and financial
stress, especially focusing on certain demographic groups or social
identities such as low-income households (Bauchet and Evans 2019;
Gjertson 2016; Kim and Wilmarth 2016; Tobe et al. 2016), immigrants
(Vesley et al. 2015), women (Menclova 2013), and young adults (Stein et
al. 2013). The coping strategies that individuals and families adopted
varied to a great extent, with some similarities.

Faith and religious beliefs were a commonly investigated and discussed

coping strategy. For example, Tobe et al. (2016) observed families
receiving counseling services and found that they used faith to build
support systems through new relationships with others. Similarly, Stein et
al. (2013) described how college students used religious coping strategies
to make sense of the economic crisis and loss. College students that

43
responded to surveys perceived the economic crisis as a punishment from
God; although their religious perceptions did not appear to be associated
with self-reported well-being (Stein et al. 2013). Reliance on family and
relationships were observed among economically distressed families:
Strong family relationships helped to sustain those under emotional and
financial stress among Midwest families (Tobe et al. 2016) and immigrant
mothers (Vesely et al. 2015).

Families also coped financially by borrowing from payday loans, filing for
bankrutpcy, using government susidies, changing jobs, or saving for
emergencies (Gjertson 2016; Lebert and Voorpostel 2016), espeically
among low-income families (Kim and Wilmarth 2016) and families with
credit constraints (Bauchet and Evans 2019; Lee and Kim 2018, Tobe et
al. 2016). These coping strategies align with the literature on economic
hardship, which concludes that many families remained financially
stressed during the illusory economic recovery. Notably, these coping
strategies were closely linked to the recession. Specifically, the likelihoods
of using payday loans and filing bankrupcy were higher among families
with damaged credit and credit card debt (Bauchet and Evans 2019; Lee
and Kim 2018, Tobe et al. 2016). Studies imply that the magnitudes of
these associations increased strongly following the Great Recession. In
addition, race and life circumstances seemed to matter when it came to
using these strategies. For instance, given the constraints created by
discrimination and inequality (Shapiro 2017), Black respondents and
households with a dependent child had higher likelihoods of using payday
loans (Lee and Kim 2018). Having a new child enter the family was
associated with an increased possiblity of filling for bankrupcy, while
retiring was associated with a decreased possiblity of filing for bankruptcy
(Bauchet and Evans 2019).

44
Public welfare was an important strategy for families who utilized these
government-sponsored programs to cope with economic hardship and
financial stress. Studies suggest that public welfare helped families to
manage their debt (Kim and Wilmarth 2016), as well as to improve their
physical health outcomes (Menclova 2013). These findings are especially
relevant given that participants included low-income families (Kim and
Wilmarth 2016) and women (Menclova 2013), who were
disproportionately impacted by the Great Recession (Baker et al. 2019;
Pfeffer et al. 2013). For families that used public welfare, these
government programs were just one component of a series of supports that
they cobbled together to cope with econimc hardship and financial stress
(Vesely et al. 2015; Tobe et al. 2016), suggesting that public welfare in
and of itself was far from sufficient (Edin and Shaefer 2016).

45