The Determinants of Gold Prices

Ong, Ting Yi (2021) The Determinants of Gold Prices. Final Year Project (Bachelor), Tunku Abdul Rahman University College.

Text Ong Ting Yi 19WBR11152_FYP - send.pdf Restricted to Registered users only Download (1MB)

Abstract

In the past few decades, statistics show the price of gold had become increasingly volatile, making it difficult for investors and traders to predict the price of gold. There have been several instances in the past decade whereby the movement in the gold prices caused by various macroeconomic variables had contradicted with the expectations of quite a few researchers and analysts. In light of this issue, the study aims to identify the determinants of the gold prices and the relationship between them in both the short-run and the long-run in order to help retail investors as well as financial institutions to make a sounder decision in investing or trading gold. The independent variables that will be used are the US dollar index, US real interest rates, US consumer price index, and the WTI crude oil prices while the dependent variable would be the price of gold. The time period for our data observed is from the year 1980 to year 2012. The main method employed to run the tests is the Autoregressive Distributed Lag (ARDL) approach. Our findings indicates that in both the short-run and in the long-run, the US dollar index, US real interest rates, and US consumer price index is negatively correlated with the price of gold while the WTI crude oil price is positively correlated. However, the US real interest rates are insignificant to explain the gold prices. Hence, the retail investors as well as financial institutions should study the US dollar index, US consumer price index, and the WTI crude oil price in detail in order to anticipate the movement in the price of gold in order to make profits from trading or investing in the commodity.