The Impact of Gold Price Changes on Saudi Stock Market

Abstract

In investment analysis gold and stock are alternate sources of investment. Gold is a very important financial asset, and in financial crises usually investors look at gold as the safe haven for them. Stock market is one of the most important aspects of the economy, in Saudi Arabia; Tadawul All Share Index (TASI) has huge market value in the region, reaching the value 1.4 trillion in 2012. In this paper, we have investigated the long-run relationship between gold prices and Saudi stock market, using 10-year monthly data set from 31 October 2004 to 30 November 2013 using the tool Ordinary Least Squares (OLS) method. The investigation applying the simple regression through Ordinary Least Squares (OLS) method shows that TASI reacts negatively to gold price movement. This research also examines the relationship between gold prices and two important sector indexes, i.e., banking and financial services (TBFSI) and telecom and information sector (TTISI) form about 30 % of TASI weight; all these sectors show a negative reaction to gold price (www.tadawul.com.sa ). As the Asian as well as the global market is showing the recovery trend after the turmoil and slowdown, we carried out this research to show the investors and analysts and the researchers the impact of gold on the security market taking the Saudi perspective. It is very important to show the relationship of equity and commodity which we think tried to be addressed in this paper.