Investigating the Relationship between Gold and Crude Oil – An Approach by Granger Causality in Quantiles

Abstract

This paper investigates the relationship between gold and crude oil using the Granger causality in quantiles test with daily returns from January 2010 to April 2021. The results reveal that gold returns contain useful information for forecasting crude oil returns, but this only occurs in the median for the whole sample and occurs primarily in the low quantiles of crude oil return when considering the pre-Covid-19 period. However, the historical data of crude oil return does not help to forecast the gold return. The Covid-19 pandemic has profoundly changed the relationship between these important financial assets. This result has an important implication for investors when considering building a portfolio related to gold and crude oil as well as redefining the forecasting model for two financial assets.