Gold as a Financial Network: The Financialization of Gold through ETFs, Mining Equities and Tokenized Assets

Abstract

Abstract The financialization of gold is investigated by analyzing the dynamic return spillovers between traditional, equity-based, exchange-traded and blockchain-based gold investment means. The empirical system includes physical gold, the SPDR Gold Shares ETF (GLD), VanEck Gold Miners ETF (GDX), NYSE Arca Gold BUGS Index (HUI), First Trust Gold Miners ETF (FTGM), PAX Gold (PAXG), and Tether Gold (XAUT). The study employs the Time-Varying Parameter Vector Autoregressive connectedness framework with generalized forecast error variance decomposition to estimate the magnitude, direction and evolution of shock transmission. The findings show that the financial economy around gold is quite tightly connected, with an average TCI of 81.13%, meaning that most of the forecast error variance of the system is attributable to cross-market shocks. GLD is the biggest net shock transmitter followed by GDX and XAUT, while the biggest net receivers are physical gold and PAXG. The results indicate that the price discovery and information transmission have been shifting from the underlying physical bullion market to exchange-traded markets and digital gold markets. The dynamic analysis also reveals that connectedness remains high but fluctuates throughout the sample, whereas PAXG gradually evolves from a net receiver to a net transmitter in the later part of the sample. Using the alternate Quantile connectedness methodology, we also find that the results are robust. Overall, it is clear that the results reflect the gradual transformation of gold from a commodity asset to a highly networked financial asset. The results are relevant to portfolio diversification, hedging, market monitoring and regulation of new gold products.