Neoclassical finance, behavioral finance and noise traders: Assessment of gold-oil markets

- First study using a frequency approach in examining gold and oil relationship.
- Oil and gold markets have a high level of co-movement during period of crisis.
- Directional causality between two markets changes over time and across frequencies.
- The directional causality is explained through oil shocks sources.

This article investigates the relationship between oil and gold price movements. We use the wavelet approach to analyze the time and frequency of this relationship. Results show that oil and gold markets have a high level of co-movement during periods of crisis. Furthermore, results suggest that directional causality is explained through the sources of oil shocks. Oil precautionary demand shocks drive fluctuations in the gold market for a short time, whereas the causality direction is reversed for a medium timeframe. However, in the case of oil aggregate demand-side shocks, we show that variables have anti-cyclical effects on each other.