Intermarket Analysis: Oil, Gold, US Dollar and Stock Market

Abstract

The interdependence among the prices of oil, gold, the US dollar and stock market prices is of fundamental importance for any investment decision. This paper studies the bilateral relationships between these asset classes in order to identify direct and indirect relationships, positive and negative interactions by using regression analysis, and then tries to demonstrate if a simultaneous relationship exists between the four asset classes via the empirical methodology: the simultaneous equation approach. The international data used to do a regression analysis to identify the bilateral relationships between assets is from November 2011 to October 2021 on a monthly basis. The study relies on many theoretical fi ndings to identify the negative or positive linkage. The main goal of quantifying these relationships, is to check if they are helpful in predicting and timing the next phase of the economic cycle. The fi ndings reveal strong cross-market interactions. An inverse relationship between oil prices and stock prices was discovered, whereas gold and the USD had a large and positive impact on oil prices. Oil, USD, and stock market developments have an impact on the gold rate. The stock market, as well as the price of gold and oil, have a considerable negative impact on the US dollar. Therefore, after studying the relationships between those assets, the results will be helpful in predicting the economic cycle.