Mo, Kwan Mo
(2011)
Quantitative Analysis of Factors Influencing the Price of Gold.
[Dissertation (University of Nottingham only)]
(Unpublished)
Abstract
Gold is widely used throughout the world nowadays. It is mainly for monetary exchange, store of value purpose, a safe-haven tool when kinds of uncertainties increase and it is also a kind of speculative investment. The gold price was around US$300 per ounce in the 1970s and skyrocketed to above US$1,400 in March 2011 but the price fluctuated a lot within this period. As a result of the Quantitative Easing (QE) measures implemented by the advanced economies and the events happening around the world, the world is now facing with the escalating price of commodities, such as gold and oil etc.
This study carries out a comprehensive analysis to find out what key factors affected gold price in the past and to evaluate whether they will continue to have an effect on gold price in the future. Due to the data availability, the assessment period selected is from year 1973 to 2010 and this whole period is divided into 3 time frames, i.e. 1973-1985, 1986-1997 and 1998-2010. The Philip-Perron (PP) Unit Test, Johansen Co-integration Test and Ordinary Least Squares (OLS) Regression Test will be selected to facilitate the analysis. The OLS regression models are built and used to find out to what extents the selected key factors with quantitative values affected the gold price in the past. After running the OLS regression models, it is found that there were 6 factors which had a continuous effect on gold price in the past. These factors were US inflation rate, US dollar index, Dow Jones industrial average index, US money supply, US federal funds rate and crude oil price.
Having considered the present global economy, these 6 key factors are considered to have a continuous effect on gold price. In addition, there are also qualitative factors which could affect the gold price movements in the short to mid-term such as natural disasters, regional political tensions and future uncertainties. The magnitude 9.0 earthquake that hit north-east Japan on 11 March 2011 is anticipated to have an impact on Japan’s economy. The North Africa’s and Middle East’s political stability and PIIGS liability crisis will also affect the global economy to a certain extent. In addition, some other factors such as US Gross National Income, Central Bank gold reserves, SWF, world gold production & world gold consumption, US economic data, gold speculation and rapid growth of buying power of China and India etc. will continue to have an effect on gold price in the future.
Statistical data of each of these 6 factors as mentioned in the 2nd paragraph for the 1st quarter of 2011 will be used to check against the gold price to verify their relationships with the gold price. The verification results show that these 6 factors definitely are continued to have an effect on gold price in the future.
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