Is it true that Indian gold price influenced by Indian stock market reaction

Abstract

The present study investigates the reaction of Indian stock market index (Sensex and Nifty) on Indian gold price or the relationship between Indian gold price and Indian stock market index (Sensex and Nifty) for the period of study between 2nd January 1991 and 10th August 2012 using daily time series data with the application of bivariate and multivariate cointegration test. In times of national crisis, bank failures, rupee depreciation, and in case of negative real interest rate, people consider gold as a solid asset and safe haven and like to invest in such yellow precious metal because there is a little chance of getting better returns in the stock investment due to a fragile economic and financial position. Bivariate cointegration test results specify that there is no cointegration relationship between gold price and the two stock market indices. But multivariate cointegration test results show that there is a presence of steady cointegration relationship between the gold price and two stock market indices in India. So, gold price in India was increased during the study period because of stock market reaction in India along with other macro-economic factors.