Fear sentiments and gold price: testing causality in-mean and in-variance

This study investigates the causal relationship between the Volatility Index (VIX), as an indicator of fear sentiment, and the price of gold futures. We apply tests of causality in-mean and in-variance to recent data about US gold futures and find bidirectional causality in-mean and in-variance patterns between both variables. We also observe a significant lagged causality in-mean, implying that changes in the VIX drive the returns of gold contracts but not vice versa. While prior studies explain gold price movements through macroeconomic variables and events, this study expands our understanding of how psychological sentiments (risk aversion) move the gold price.