International Capital Flows, Dynamic Changes in Cryptocurrency and Noble Metal Markets

Abstract

In 2022, with the implementation of tightening monetary policies by FOMC, US dollar is experiencing a dramatic appreciation in a very short period. Though numerous studies have demonstrated the connection between the traditional currency market, cryptocurrency market, and precious metal market, rare studies are exploring the relationships between the three markets under a special political environment. This paper selects USDCNY exchange rate, gold and silver, and bitcoin as the representatives of three markets and then tests the volatility response of return on gold & silver and return on bitcoin to the change of return on USDCNY exchange rate. By employing impulse response function and ARMA-GARCHX model, the paper verifies the change of exchange rate will exacerbate the volatility of returns on gold & silver and bitcoin significantly, which suggests high risk and uncertainty of the cryptocurrency market and precious metal market in a complex and extreme political environment. Investors and speculators should take prudent investment strategies in such environment.