the silver market differs substantially from the interest rate markets. The tests so far aggregate the effects of the announcements. This masks the separate effects of each announcement. It is
possible that some announcements have detectable effects on gold and silver. To identify the effects of each announcement on the metal futures, we conduct a series of regression tests.
V. The Impact of Each Announcement on Gold and Silver
The procedure employed modifies the procedure used by Ederington and Lee 1993. Unlike Ederington and Lee 1993, we use the surprise component of the announcements
as independent variables. The model used is shown below.
uRtn
jt
2 MRtn
u MRtn
5 a
0j
1
O
k5 1
K
a
kj
Surprise
kt
1 e
kt
3 Surprise is computed as
Surprise 5 uActual 2 Forecastu
Forecast 4
where Rtn
jt
is the return across a given intraday interval j on day t, and MRtn is the mean return for that particular interval across the sample period. The actual and forecasted
values for the announcements are purchased from Money Market Services MMS. This allows us to compute the surprise components associated with the announcements. MMS
surveys about 40 academics and leading practitioners and then uses the median value from these forecasts as the expected value of a forthcoming announcement. The MMS forecast
data has been used in prior studies see e.g., Frankel and Hardouvelis, 1985, Almeida, Goodhart, and Payne, 1998. The absolute value of the surprise is used as we only estimate
the intensity of the effects of the announcements.
Regressions for the time intervals following the first set of announcements at 7:30 a.m. but preceding the second set of announcements at 8:15 a.m. use the surprise
variables of only the first 11 announcements issued at 7:30 a.m. For the intervals following the second at 8:15 a.m. and following sets of announcements 9:00 a.m. and
1:00 p.m., the surprise variable of all announcements issued in the preceding intervals are employed. For example, following the second set of announcements we use the surprise
variables for the eleven announcements released at 7:30 a.m. and the surprise variables for the two announcements released at 8:15 a.m. The surprise variables for the eleven
announcements released at 7:30 a.m. now act as control variables, so that the effects of the 8:15 a.m. announcements can be discerned.
To capture the effects of the first set of announcements, we perform regressions on the interval immediately following 7:30 a.m. announcements i.e., on the 7:45 a.m. interval.
This regression has the surprise variables for the 11 announcements released at 7:30 a.m. acting as independent variables. We report all coefficients for announcements that have
significant effects on at least one of the four instruments at the 10 level of significance. Coefficients of announcements that have no effects on any instrument are not reported.
We apply the same procedure to the other three sets of announcements. For example, to capture the effects of the second set of announcements released at 8:15 a.m., we
perform regressions on the 8:30 a.m. interval. This regression has the surprise variables for
414
R. Christie–David et al.
the 11 announcements released at 7:30 a.m. acting as control variables and the surprise variables for the 8:15 a.m. announcements acting as independent variables.
In some instances, two announcements are issued at the same time. For example, Industrial Production and Capacity Utilization are released at the same time on the same
day. The surprise variable for Industrial Production and Capacity Utilization are each multiplied by 0.5. The three components of the Employment Report, Non-Farm Payroll,
the Unemployment Rate, and Hourly Wages are also released together. Thus, the surprise variable of each component of the Employment Report is multiplied by 0.333. Construction
Spending and the NAPM Survey are mostly released on the same day. When this happens, the surprise variable that represents each of these two announcements is multiplied by 0.5.
The results of these tests are detailed in Table 3. Comparing results between the interest rate and metal futures provides a striking contrast. A number of announcements affect the
Treasury bond and municipal bond futures; however, fewer announcements systematically affect the metal futures. For instance, among the announcements released at 7:30 a.m., we
note that the CPI, the Unemployment Rate, Gross Domestic Product, and the PPI have significant effects on gold. For gold, among the later announcements Capacity Utilization
has detectable effects at the 1 level of significance. Also, the Federal Deficit affects gold prices, but weakly at the 10 level of significance. For silver, among the 7:30 a.m.
announcements we note strong responses to the release of the Unemployment Rate and weaker responses to release of the CPI and Hourly Wages. Capacity Utilization, released
at 8:15 a.m., is found to have strong effects on silver, whereas the release of Construction Spending and Business Inventories at 9:00 a.m. draw weaker responses from silver.
To provide some perspective on the effects of the announcements consider the effects of the announcements on a percentage basis. The percentage of announcements that have
detectable effects on the Treasury bond futures, the municipal bond futures, gold futures, and silver futures at the 1 level of significance is 43.4 7 of the 23 announcements,
30.4, 8.7, and 4.4, respectively. Corresponding values excluding the announce- ments affecting the instruments at the 1 level of significance at the 5 level of
significance are 17.4, 0, 13.0, and 4.4, respectively. The percentages for the metal futures are much less than the percentages for the interest rate futures. On the other hand,
the strong response of gold to the release of the CPI and both gold and silver to Capacity Utilization is evidence that, even in a period characterized by stable inflation, the issue of
some announcements still have pronounced effects on gold and silver prices. Both these announcements provide estimates of current and future levels of inflation. Thus, it is not
surprising that these two announcements have strong effects on the metal futures. The CPI, issued by the Bureau of Labor Statistics in the second or third week of the month,
measures prices of a comprehensive basket of goods and services and thus provides a measure of inflation from the demand side. Capacity Utilization, on the other hand,
measures inflation from the supply side, as it estimates the capacity and availability of manufacturing resources. Frankel and Hardouvelis 1985 find that gold responds more
strongly than silver to the surprise component of weekly releases of money supply announcements. Their sample spans the period July 7, 1980 to November 5, 1982 see
their Table 2. The Federal Reserve announced a change in operating procedures on October 6, 1979. This prompts them to examine a preannouncement period as well September
29, 1977 to October 4, 1979. They still find the response of gold to be stronger than the response of silver to surprises in money growth see their Table 5. Frankel and Hardouvelis
1985 results may not be directly comparable to ours, given the difference in sample periods, the types of announcements examined, and the difference in data frequency they use daily
Do News Releases Affect Gold and Silver Prices?
415
Table 3.
Regression Tests to Identify the Effects of Individual Announcement
Dependence Variable CPI
Unemployment Rate
Hourly Wages
Nonfarm Payroll
GDP Housing
Starts PPI
Retail Sales
Durable Goods
First Set of Announcements: Release Time 7:30 a.m. CST Mbond
1.548 2.335
0.799 1.820
1.076 1.868
3.377 1.632
0.109 1.80
6.20 1.00
6.21 1.90
0.560 5.15
4.77 1.60
Tbond 2.772
3.365 1.212
3.740 1.956
0.937 8.004
2.560 0.169
2.53 7.02
3.57 5.18
2.71 2.23
9.59 5.87
1.83 Gold
2.693 0.378
0.790 0.107
0.591 0.250
1.298 0.360
0.019 4.32
2.04 1.01
0.65 2.07
0.08 2.04
1.07 0.27
Silver 4.808
0.164 0.949
0.041 0.278
0.824 0.429
0.132 0.060
1.71 2.13
1.74 0.07
0.15 0.76
0.20 1.18
0.25 Dependent Variable
Industrial Production
Capacity Utilization
Second Set of Announcements: Release Time 8:15 a.m. MBond
5.211 3.145
3.39 3.31
Tbond 4.497
4.990 3.16
5.68 Gold
0.259 6.274
1.01 5.89
Silver 0.567
9.003 1.33
2.99 Dependence Variable
Construction Spending
New Home Sales
Personal Spending
Business Inventories
Third Set of Announcements: Release Time 9:00 a.m. Mbond
0.948 0.268
0.140 0.612
3.55 0.32
0.21 1.22
Tbond 1.057
0.452 0.477
0.215 3.50
3.07 2.03
1.76 Gold
0.069 0.188
0.277 0.602
0.52 1.37
0.26 1.18
Silver 0.571
0.911 0.600
0.397 1.64
0.25 0.22
1.76
416
R. Christie–David
et al.
Table 3. Continued.
Dependent Variable Federal Deficit
Fourth Set of Announcements: Release Time 1:00 p.m. Mbond
0.040 0.18
Tbond 0.185
1.99 Gold
0.510 1.66
Silver 1.147
0.82
The procedure employed modifies the procedure used by Ederington and Lee 1993. The model used is shown below.
u Rtn
jt
2 MRtn
MRtn u 5 a
0j
O
t2 1
R
Surprise
kt
1 e
kt
Surprise is computed as the ratio of the absolute difference between the actual and forecasted values divided by the forcasted value. Rtn
jt
is the return across a given intraday interval j on day t and MRtn is the mean return for that particular interval across the sample period. Regression for the time intervals following the first set of announcements but preceding the second set of announcements
use the surprise variables of only the first nine announcements issued at 7:30 a.m. For the intervals following the second and following sets of announcements, the surprise variable of all announcements issued in the preceding intervals are employed. To capture the effects of the first set of announcements we perform regressions on the interval immediately following 7:30 a.m. announcements i.e., on
the 7:45 a.m. interval. We apply the same procedure to the other three sets of announcements. In some instances two announcements are issued at the same time. For example, Industrial Production and Capacity Utilization are released at the same time on the same day. The surprise variable for Industrial Production and Capacity Utilization are each multiplied by 0.5. The three components of the
Employment Report, Non-Farm Payroll, the Unemployment Rate, and Hourly Earnings are all released together. Thus, the surprise variable of each component of the Employment Report is multiplied by 0.333. Construction Spending and the NAPM Survey are mostly released on the same day. When this happens, the surprise variable that represents each of these two announcements is multiplied by
0.5. Significant coefficients have been multiplied by a factor 10
3
and t-values are given in the parentheses. The , , denote significance at the 1, 5, and 10 levels, respectively.
Do News
Releases Affect
Gold and
Silver Prices?
417
data. We still find it remarkable that the results from both studies have such correspondence, in that we too find gold to respond more strongly to the release of the CPI than silver at the
1 and 10 levels, respectively. The CPI is perhaps the most comparable monthly announcement in our sample to their weekly money supply announcement.
6
VI. Summary and Conclusions
