Oil price and exchange rate : causation or correlation to gold price.

Abstract

This study investigates the correlation and causality between the price of gold, price of crude oil and Eurodollar exchange rate using monthly data ranging from January 1985 to February 2012. The study also presents the different characteristics and price determinants of the three studied variables. Methods, analysis and theoretical knowledge from previous literature, books and published articles are also presented in this study using OLS regressions, correlation and granger causality tests in order to investigate the relationship between the price of gold, price of crude oil and Eurodollar exchange rate. As a result, the study reveals a positive relationship between the price of gold, price of crude oil and Eurodollar exchange rate, in addition to a two-way causality between the price of gold and price of crude oil on one hand and between the price of crude oil and Eurodollar exchange rate on the other hand.