Volatility Behaviour of Gold Mini Futures Price in India

Abstract:

Measuring and forecasting commodity price volatility has important implication for investors, portfolio managers because volatility has information content. Traditionally precious metals command a much higher price due to a number of factors such as economic crises, demand in emerging economies and inflation expectations. They also have relation with other assets and hence convey certain information which can be used by investors to forecast financial asset prices. So far as commodity prices are concerned, they have become more volatile in recent years. One obvious reason for commodity market volatility is supply constraint or any form of disruptions due to hoarding, cartel, political uncertainty, war, weather conditions. Apart from this, in case of trading in F&O, ETFs precious metals are used as collaterals and hence can affect volatility. Commodities along with financial assets tend to move in tandem due to effect of common macroeconomic fundamentals such as interest rate, inflation and exchange rate. This paper models gold mini futures price volatility in India using the threshold generalised autoregressive conditional heteroscedasticity (TGARCH) model for the period from January 17, 2015 till October 17, 2022. The study founds presence of asymmetric volatility in gold futures indicating gold price increases more during good economic phase compared to decrease in gold price of same magnitude during bad phase of economy. This means gold behaves opposite to other financial asset classes and therefore should be included in portfolio.

Keywords:

TGARCH; volatility; financial assets; gold price.

Citation: Manik Chand Dey, Jakki Samir Khan and Nirmal Kumar Routra (2024). Volatility Behaviour of Gold Mini Futures Price in India. Horizon J. Hum. Soc. Sci. Res. 6 (S), 108–114. https://doi.org/10.37534/bp.jhssr.2024.v6.nS.id1258.p108