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

O'Connor, Fergal, Lucey, Brian and Baur, Dirk (2016) Do gold prices cause production costs? International evidence from country and company data. Journal of International Financial Markets, Institutions & Money, 40. pp. 186-196.

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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.

Item Type: Article
Status: Published
DOI: https://doi.org/10.1016/j.intfin.2015.11.001
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HC Economic History and Conditions
H Social Sciences > HF Commerce
H Social Sciences > HG Finance
School/Department: York Business School
URI: http://ray.yorksj.ac.uk/id/eprint/1440

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