Risk Spillovers from the U.S. to Chinese Gold Futures Markets: The Role of Speculative Bubbles, Monetary Policy, and the COVID-19 Pandemic

This study examines the mechanisms through which risk spills over from the U.S. to China’s gold futures market, with U.S. price bubbles identified as an important mechanism. The analysis is motivated by atypical gold price surges observed during the COVID-19 pandemic and around the Federal Reserve’s 2022 tightening cycle, which are difficult to reconcile with conventional monetary explanations and highlight gaps in the evidence on cross-border transmission in a core safe-haven asset. A TVP-VAR-DY model is used to construct dynamic spillover indices, together with bubble tests to provide evidence consistent with a shock-induced bubble mechanism that amplifies subsequent spillovers. The results are threefold. First, a persistent and predominantly unidirectional risk spillover is documented from the U.S. gold futures market to the Chinese market. Second, episodes of risk spillover exhibit a strong temporal correlation with the collapse of price bubbles in the U.S. market, indicating that bubble collapses are a key precipitating factor for risk transmission. Third, both the COVID-19 shock and the Federal Reserve’s rate hikes are associated with the formation of price bubbles in the U.S. gold market. Overall, the evidence indicates major shocks can induce price bubbles in U.S. gold futures, which subsequently amplify risk spillovers to China.