The volatility dynamics of spot and futures gold prices: Evidence from Russia

• We examine the long memory property and structural break in the spot and futures gold volatility in Russia.
• We find strong evidence of long memory in the volatility of both spot and futures gold series.
• Structural break dates occurred in 2009 and they are associated with the recent global financial crisis.
• There is a relatively high level of conditional correlation between spot and futures gold returns.
• The Russian gold futures contract is not a very effective tool for hedging risk due to low hedging effectiveness and hedge ratios.

We examine the long memory property and structural break in the spot and futures gold volatility in Russia from 2008 through 2013. We find strong evidence of long memory in the volatility of both spot and futures gold series. The break dates are associated with the recent global financial crisis. Moreover, we investigate the volatility spillover effect between the Russian spot and futures gold markets using the corrected Dynamic Conditional Correlation model (cDCC). The findings show relatively high level of conditional correlation between spot and futures gold returns. This outcome decreases the portfolio diversification benefits for gold investors.