The Correlation Analysis Between The Price Of Gold And The Us Dollar Index Based On Time-varying Quantile Association Regression Model

The monetary function of gold has been weakened after the Bretton Woods system,merchandise and financial properties of it are outstanding.Gold has become an important foreign exchange reserve for each central bank because of its hedging function.National financial regulatory authorities are concerned about the trend of gold prices.In addition,gold has become the important investment target benefit from its value and high liquidity.Changes in the price of gold and the dollar exchange rate changes have a greater relationship.On the one hand,the price of gold will be directly affected by the dollar because that gold is mainly denominated in dollars.On the other hand,gold and dollars have the role of mutual substitution,because that gold and the dollar both have the hedge function.Trump strong policy is in doubt now.The relationship between gold prices and the dollar aroused the concern of market participants once again.The research on the price of gold and the US dollar index mainly choose the linear correlation coefficient,Granger causality test or Copula models.But there are some limitations of them.Different from previous studies,in this paper,time-varying quantile association regression model is constructed.We use the model and the method of local polynomial regression to study the time-varying tail dependence between the price of gold and the US dollar index at different quantile levels.The empirical results show that the price of gold and the dollar index are negatively correlated most of the time.There is a positively related dependence during the extraordinary times at different quantile levels,like the transform of the political landscape,the outbreak of war and the large fluctuations in the economy of the period.Finally,we analyzed the correlation between the gold price and the US dollar index combined with the corresponding political and economic context.These empirical results have great significance for investors to recognize the trend of gold.This paper chooses the event of the financial crisis as a background to study.We found that in normal times,gold and the dollar index is negatively correlated in the extreme tail,the same as the gold and the nominal exchange rate of the dollar.But during the financial crisis,this relationship has changed due to the increase in the degree of risk aversion of investors.They will show a strong positive correlation both in the extreme tail.The dollar and gold prices are the same with the same fall down in the extreme market conditions.In addition,we also find that the positive correlation of the dollar and gold in the period of the crisis is more obvious in the case of extreme markets.The positive correlation tends to disappear when the market is relatively stable.