Abstract: As a special commodity, gold possesses multiple features: as commodity, currency and hedging instrument. Its currency and hedging features are well manifested during this financial crisis since 2007. We encompass the above three features of gold and decompose gold value into the commodity value, currency value and default risk premium. Using CRB index, USDX and U.S. Treasury CDS spread as variables in our VAR model, we find that USDX is negatively correlated with gold price, while CRB and U.S. Treasury CDS spread are positively correlated with gold price. Specifically, one-lagged CRB, one-lagged USDX, and two-lagged U.S. Treasury CDS spread show strong explanation power. Besides, it also states that the volatility of gold price exhibits clustering, long memory, but no asymmetry is identified in our study.

Key words: gold, financial crisis, asset pricing, CRB index, USDX, CDS