Does futures speculation affect spot price levels – Evidence from precious metal
Post by MSF Chula at Monday, 18 September 2017 11:00 AM

This paper examines the effect of speculation in the precious metal futures market to
precious metal spot price and volatility during 2007 – 2016. The results show statistically
positive signification relationship between the increasing of speculators’ long positions and
spot price change and statistically negative signification relationship between the increasing
of speculators’ short positions and spot price change in gold market. The study implies that
increasing of speculators’ long position leads to an increase of gold spot price and increasing
of speculators’ short position leads to a decrease of gold spot price. However, there is no
relationship between the increasing silver speculators’ long and short positions to silver spot
price. Additionally, the study shows that increasing of speculators’ short positions in gold
futures decreases the volatility in gold spot price while there is no relationship in silver
market. One possible explanation of the different result between gold and silver is the
proportion of speculators’ shares in two markets. While the proportion of speculators’ shares
in gold futures market considerably increased, the proportion of speculators’ shares in silver
futures market slightly changed.

Last updated at Monday, 18 September 2017 11:00 AM