Gold price has been subjected to volatility clustering since the abolishment of the gold standard in August 1971. While there are myriad studies focused on developed economies, studies on the pattern of volatility in gold especially under the context of small open economy of Malaysia are still lacking. Attempting to fill in the gap, this study provides insight into the trend of gold price volatility as well as to examine the time variant nature of gold volatility surrounding the US subprime crisis. This study also provides a new perspective on the transmission between bilateral exchange rate (MYR/USD) and gold price. This study covered recent daily data from August 2005 to July 2018 using different models of ARCH-GARCH including ARCH, GARCH, EGARCH and TGARCH. Accordingly, gold price volatility was persistent across all periods. Enhanced volatility was evident during the 2008 global financial crisis (GFC) owing to high speculative activities and clustered news over the period. In term of asymmetry response, there was inverted asymmetry effect where positive shock raised volatility in gold. Finally, bilateral exchange rate (MYR/USD) affected gold price volatility with positive relationship, implicating the high sensitivity of gold investment during the depreciation of local currency.
This study provides new insights into the recent time-varying pattern of gold volatility surrounding the Subprime Global Financial Crisis (GFC) 2008 with special emphasis given to small open economy of Malaysia. Using daily data of gold bullion Kijang Emas issued by the Bank Negara Malaysia from August 2005 till July 2018, the study modelled the gold volatility using different models of ARCH-GARCH family. Under the context of emerging economy, the study found significant enhanced gold volatility during the middle of GFC, signifying that gold price is highly sensitive to specific economic disturbance. Next, our result displayed inverted asymmetry effect where investors interpret gold as a safe-haven investment during good gold returns, hence contributed to enhanced gold volatility. Finally, bilateral exchange rate (MYR/USD) affected volatility with positive sign, indicating that gold investment could be adversely affected during the depreciation of the Malaysian Ringgit.
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