These results are important for those trading in the commodity markets on a frequent basis and long-term market participants that take their decisions based on information on price fundamentals, which are reflected in the release of macroeconomic announcements.

Discussing “Good News”, “Bad News”, and Volatility, the the researchers found that Gold prices are more sensitive to “bad news”. The results indicated that there are few commodities for which the good-bad news distinction makes any difference, with one exception being gold—bad news affects the gold price much more than good news. The coefficient on the bad news aggregate is statistically significant and much higher than that on good news, a result that is maintained even when we control for the U.S. dollar. The study showed the effect on the U.S. dollar which was, perhaps unsurprisingly, symmetric for both types of news.

It was consistent with the view that gold is a safe haven and financial assets—in this case gold futures—experience greater volatility during periods in which economic or financial conditions deteriorate. There is also the potential for significant non-linearities in gold price sensitivities.

The results suggested that commodities are not just financial assets and gold is not just another commodity. Some commodity prices are influenced by the surprise element in macroeconomic news, with evidence of a pro-cyclical bias, particularly when we control for the effect of the U.S. dollar. Commodities tend to be less sensitive than financial assets—for example, crude oil, the most actively traded commodity futures contract, shows no significant responsiveness to almost all announcements. However, as commodity markets have become financialized in recent years, so their sensitivity appears to have risen somewhat to both macroeconomic news and surprise interest rate changes.

The gold price is sensitive to a number of scheduled U.S. and Euro area macroeconomic announcements—including retail sales, non-farm payrolls, and inflation. Gold's high sensitivity to real interest rates and its unique role as a safe-haven and store of value typically leads to a counter-cyclical reaction to surprise news, in contrast to their commodities. It also shows a particularly high sensitivity to negative surprises that might lead financial investors to become more risk averse.

These results have a number of implications. To reduce the uncertainty of the return on gold transactions, traders may wish to time their orders flow so as to avoid the release of information that has been shown to affect prices. For longer-term market participants, these results provide confirmation of the pro-cyclical bias of many commodities and gold's role as a safe-haven during periods of economic uncertainty. Looking forward, one key issue will be the extent to which increasing financialization heightens the sensitivity of commodities to macroeconomic developments.#