Do Gold Prices Cause Production Costs? Evidence from Country and Company Data

27 Pages Posted: 9 Oct 2014 Last revised: 4 Feb 2015

See all articles by Fergal A. O'Connor

Fergal A. O'Connor

University College Cork; University of York - The York Management School; University of Dublin - Business School and Institute for International Integration Studies

Dirk G. Baur

University of Western Australia - Business School; Financial Research Network (FIRN)

Brian M. Lucey

Trinity Business School, Trinity College Dublin; University of Sydney Business School; Ho Chi Minh City University of Economics and Finance; Jiangxi University of Finance and Economics

Date Written: February 3, 2015

Abstract

This paper analyses the causal relationship between gold production costs and gold prices using a hand-collected set of country and company data on gold mining. 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-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 conditional on the gold price. Production thus follows gold prices.

Keywords: gold price, gold production costs, mining, causality, real optionality, Ricardo

JEL Classification: F40, G19, L10, L11

Suggested Citation

O'Connor, Fergal A. and Baur, Dirk G. and Lucey, Brian M., Do Gold Prices Cause Production Costs? Evidence from Country and Company Data (February 3, 2015). FIRN Research Paper No. 2507733, Available at SSRN: https://ssrn.com/abstract=2507733 or http://dx.doi.org/10.2139/ssrn.2507733

Fergal A. O'Connor

University College Cork ( email )

College Road
Cork
Ireland

University of York - The York Management School ( email )

Sally Baldwin Buildings
Heslington
York, North Yorkshire YO10 5DD
United Kingdom

University of Dublin - Business School and Institute for International Integration Studies ( email )

2-3 College Green
Dublin, Leinster D2
Ireland

Dirk G. Baur

University of Western Australia - Business School ( email )

School of Business
35 Stirling Highway
Crawley, Western Australia 6009
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Brian M. Lucey (Contact Author)

Trinity Business School, Trinity College Dublin ( email )

The Sutherland Centre, Level 6, Arts Building
Dublin 2
Ireland
+353 1 608 1552 (Phone)
+353 1 679 9503 (Fax)

University of Sydney Business School ( email )

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Sydney, NSW 2006
Australia

Ho Chi Minh City University of Economics and Finance ( email )

59C Nguyen Dình Chieu
6th Ward, District 3
Ho Chi Minh City, Ho Chi Minh 70000
Vietnam

Jiangxi University of Finance and Economics ( email )

South Lushan Road
Nanchang, Jiangxi 330013
China

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