The effect of gold price volatility on stock market returns in South Africa

The South African stock market has become a major player in the African Securities Exchanges Association through its performance. Gold is one of the commodities that are traded at Johannesburg Stock Exchange, hence gold price fluctuations are the crucial factor that JSE needs to keep its eye on. The demand for gold in South Africa is continuously rising because gold has full security, less credit risk and is a highly liquid instrument. Based on the given background, the study examines the effect of gold price volatility on stock market returns in South Africa, employing the Generalised Autoregressive Conditional Heteroskedasticity (GARCH) (1.1) model. The study used monthly data covering the period from 2005 to 2017. The Storage model and discounted cash flows model which are the theories that connect gold price and stock market were specified. The research findings are supported by previous studies. The gold price volatility was found to have a negative effect on stock market returns, and the proxy of stock market returns is the All Share Index. The study will help to provide an understanding of how gold price volatility affects the stock market that will help policymakers to come up with policies that are relevant to volatility of gold price towards stock market