Heterogeneous impacts of fundamentals on gold market risk using regime switching quantile-based GARCH-MIDAS model

Qiuying Cheng (), Xinyu Wang (), Song Shi () and Zhuqing Wang ()
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Qiuying Cheng: China University of Mining and Technology
Xinyu Wang: China University of Mining and Technology
Song Shi: China University of Mining and Technology
Zhuqing Wang: China University of Mining and Technology

Empirical Economics, 2025, vol. 69, issue 3, No 12, 1465 pages

Abstract: Abstract In the prevailing macro-volatile environment, the safe-haven status of gold is being challenged. To analyze the time-varying and heterogeneous impact of global geopolitical risk and macroeconomic fundamentals in the USA and China on gold market risk in different states, we propose a new Markov regime switching quantile-based GARCH-MIDAS model, the uniqueness of which is that it explores the regime switching behavior of low-frequency variables in the framework of mixed-frequency modeling. We find that geopolitical risk (GPR) index and macroeconomic variables, such as the broad money supply growth rate, the US dollar index, the consumer sentiment index in the USA, as well as the consumer price index growth rate, consumer confidence index, and leading indicator in China, exhibit significant regime switching behavior. Moreover, they have cyclically heterogeneous impacts on gold market risk, as reflected in reversals in the direction of impact, or differences in the intensity of impact. Macroeconomic variables tend to have a greater effect on gold market risk during economic recessions such as the global financial crisis and the COVID-19 pandemic. However, gold market risk tends to be lower when the GPR is in a high uncertainty state, and gold is a stronger hedge against the GPR. It can accurately predict gold market risk and provide insightful guidance for managing gold market risk.

Keywords: GARCH-MIDAS; Gold’s safe-haven status; Macro-fundamentals; Quantile regression; Regime switching (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s00181-025-02772-7

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