Gold, currencies and market efficiency

TL;DR

This study evaluates the efficiency of gold markets across different currencies using a novel extended Efficiency Index, revealing unexpected patterns likely influenced by monetary policies and market collusion during 2011-2014.

Contribution

It introduces an extended EI methodology to rank gold market efficiency across currencies, uncovering counterintuitive results linked to specific economic conditions.

Findings

Major currencies' gold prices are among the least efficient.

Minor currencies' gold prices are among the most efficient.

Efficiency patterns are influenced by monetary policies and market collusion.

Abstract

Gold and currency markets form a unique pair with specific interactions and dynamics. We focus on the efficiency ranking of gold markets with respect to the currency of purchase. By utilizing the Efficiency Index (EI) based on fractal dimension, approximate entropy and long-term memory on a wide portfolio of 142 gold price series for different currencies, we construct the efficiency ranking based on the extended EI methodology we provide. Rather unexpected results are uncovered as the gold prices in major currencies lay among the least efficient ones whereas very minor currencies are among the most efficient ones. We argue that such counterintuitive results can be partly attributed to a unique period of examination (2011-2014) characteristic by quantitative easing and rather unorthodox monetary policies together with the investigated illegal collusion of major foreign exchange market participants, as well as some other factors discussed in some detail.