Do gold prices cause production costs? International evidence from country and company data

O’Connor, Fergal A., Brian Lucey and Dirk G. Baur
Authors registered in the RePEc Author Service: Fergal O'Connor ()

Journal of International Financial Markets, Institutions and Money, 2016, vol. 40, issue C, 186-196

Abstract: This paper analyses the causal relationship between gold production costs and gold prices using a set of country and company data collected at the individual mine's level. We find strong econometric evidence for causality running from gold prices to gold production costs. The results are supported theoretically by the small amount of annual gold production relative to the total stock and the real options embedded in gold mines. The low flow to stock ratio of gold implies low market power of gold mining firms and thus an inability to significantly influence gold prices. The real options enable gold mining firms to adjust production costs conditional on the gold price; production costs thus follow gold prices.

Keywords: Gold price; Gold production costs; Mining; causality; Real optionality; Ricardo; Inflation channel (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (15)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:40:y:2016:i:c:p:186-196

DOI: 10.1016/j.intfin.2015.11.001

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