ABSTRACT This paper investigates whether household finance impacts as a macroeconomic driver of gold price in India centering on the novel household‐finance channel. Utilizing annual time‐series data for the period 1960–2017, we use an econometric approach that incorporates cointegration regression techniques, Toda‐Yamamoto causality, autoregressive distributed lag (ARDL) bounds testing and dynamic simulations to uncover the nexus between the net financial position of households (NFPH) and domestic gold price. The results reveal a long‐run causal relationship with NFPH exerting a positive and unidirectional causality on gold price. Expanding financial openness and rising crude oil prices act as moderators and exert a weak but negative effect on gold demand. But, official gold reserves exhibit a consistent pro‐cyclical impact. Further, additional advanced tests like Quantile Augmented Dickey–Fuller (QADF) tests, Wavelet Quantile Regression (WQR), Quantile‐on‐Quantile Granger Causality (QQGC), and Cross‐Quantilogram techniques reveal a stronger nexus between household finance and gold price which is conditioned on forecast range. Particularly, household finance acts as a strong support for the gold price during market lows as well as in long‐run forecast ranges even though other factors dominate during price spikes. Our findings highlight the importance of household financial position in modeling gold price and provide specific insights on gold policy in emerging economies like India.
Swamy et al. (Tue,) studied this question.