Role of Economic Policy Uncertainty in Forecasting Gold Futures Volatility: Evidence From India

ABSTRACT Gold's status as a safe‐haven asset has gained prominence amid rising economic policy uncertainty (EPU). This study examines the impact of EPU on the volatility of the Indian gold futures market using the advanced methodology of GARCH–MIDAS, which accommodates mixed frequency variables. The findings of the study demonstrate that long‐term volatility of gold futures in India is influenced by both domestic and global EPU (GEPU), with domestic EPU having a greater impact. Also, the study establishes that domestic EPU serves as a superior predictor of Indian gold futures volatility than GEPU. The results indicate that Indian Investors might be more sensitive to domestic policy uncertainty shocks than to GEPU shocks. The study offers valuable insights for gold futures market participants, assisting investors and traders in managing market volatility, and also holds significance for government officials and policymakers.