Monetary policy uncertainty and gold price in India: Evidence from Reserve Bank of India's Monetary Policy Committee (MPC) review

• Published in: Resources policy 2022-06, Vol.76, p.102642, Article 102642
• Main Authors: Shaikh, Imlak, Vallabh, Priyanka
• Format: Article
• Language: English
• Subjects: Banking; Commodities; Consumers; Exchange rate; Federal fund rates; Foreign exchange rates; Futures; Gold; Gold markets; Gold price; Interest rates; Investors; Markets; MCX Futers and spot price; Meetings; Monetary policy; Monetary policy uncertainty; Parameter estimation; Prices; Regulation; Trading; Uncertainty; Volatility
• ISSN: 0301-4207; 1873-7641
• DOI: 10.1016/j.resourpol.2022.102642

Fed's monetary policy review and interest rates contain essential information to explain asset price performance, including Gold, and it's incomparable because it delights both investors and consumers. The study aims to explore the effects of the Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) review on the Indian gold market considering scheduled MPC meetings. We consider 98 MPC meetings and essential governments' gold policies and regulations for the timeline 2005–2020. The empirical outcome states that the RBI's announcements matter for the gold market. A decrease in the gold price surrounding the meetings implies tightening monetary policy from a neutral state. Moreover, the INR/USD exchange rate plays a vital role in the gold price setting. MCX-futures and Spot market evidence show that a rise in the policy rates negatively impacts the Indian gold market. Indeed, interest rates change, and RBI's action has discouraged gold trading in India. The parameter estimates of the conditional volatility framework appear to be positive and statistically significant indicate volatility persistence following the monetary policy review and gold market volatility (GVZ). Hence, interest rates hold important implications for the gold trading community. •The study aims to explore the effects Monetary Policy Committee (MPC) review on the Indian gold market.•The empirical outcome states that the RBI's announcements matter for the gold market.•A decrease in the gold price surrounding the meetings implies tightening monetary policy from a neutral state.•The INR/USD exchange rate plays a vital role in the gold price setting.•Interest rates hold important implications for the gold trading community.