Gold and crude oil prices after the great moderation

Highlights: • Since 2008 Crude Oil Prices and Gold Prices have been non-linearly cointegrated • Asymmetric adjustment explains previous findings of non-cointegration • Oil price shocks have effects that depend on the size of the shock and the region within the system lies. • Financial and energy policies cannot be designed independently of the spillover effects. - Abstract: Previous studies have reported that gold prices and crude oil prices seem to be related, with causality generally running from oil prices to gold prices. This paper revisits the question using non-linear threshold cointegration methods. It examines how a shock to oil prices affects gold prices, with the impacts shown to depend on both the size of the shock and the region within which the system lies when the shock occurs. This simple, yet novel result helps to explain why earlier studies found conflicting evidence on whether gold and crude prices share a long-run relationship. The empirical findings also suggest that energy policies should not be designed without consideration for their interaction with financial policies.