The Contemporaneous Link Between Gold Price and its Implied Volatility Across Market-States, Frequencies and Time Periods

Abstract

The present work investigates quantile coherency between the price of gold and the implied volatility index (GVZ) of gold, in the US, from 2015 to 2024. The empirical results suggest: First, on average, gold traders are concerned more with sudden price upswings than with downswings. Second, the intensity and the sign of the link between gold price returns and GVZ returns depends on the market-state and the traders’ time horizon. Gold price and implied volatility returns exhibit a stronger link at the upper than at the lower part of their joint distribution and the absolute magnitude of quantile coherency tends to increase (almost) monotonically from the high- to the low-frequency. Third, gold traders’ perceptions regarding changes in future prices and, consequently, about self-protection, are quite volatile; Lastly, crises such as the coronavirus pandemic and the Russo-Ukrainian conflict are associated with an increase in quantile coherency.