Implications of Gold Trading for the Global Economy

Abstract

One of the precious metals found in the earth’s crust, whose economic value dates back several centuries and remains relevant in our contemporary socio-economic settings, is gold. Society’s veneration for the precious metal surges from one generation to the other. However, most developing economies endowed with large quantities of gold are plagued with unbridled activities of warlords, foreign-backed militias, rebels, and illegal artisanal miners, some of whom operate on behalf of political stalwarts who mask their true identity. The purpose of this research was to examine how trading activities related to gold tend to affect gross domestic product (GDP) values at the national and global levels. The quantitative approach to scientific inquiry was adapted and used in the study. Specifically, the cross-sectional design formed the basis of the research. Data required for the conduct of the research were obtained mainly from secondary sources. These included textbooks, peer-reviewed articles published in journals and grey literature. Other sources were the Google Search Engine, including databases of Macrotrends and World Bank, databases and archives of the United States Geological Survey, among other significant sources. Respective data on Ghana’s annual gold production volumes, gold revenues and GDP values from 1980 through 2020 and respective data on annual average closing prices per ounce of gold, global gold production volumes, global gold revenues and global GDP values from 1969 through 2020 were used in the research. Descriptive statistics and regression models were used to describe the research variables and to evaluate their behaviour over the stated time frame on national and global GDP values. The study revealed gold as a viable source of alternative investment and an effective portfolio diversifier in periods of volatility in the global equity markets. The average closing price per ounce of gold in 2020 was the highest since 1969. More than a third of the world’s total gold reserves (34.26%) were held by Australia, Russia and South Africa, and China remained the world’s largest producer of gold in 2019. For most developing economies with large production volumes, the percentage and monetary contribution of gold revenue to GDP was determined to be significant. However, for most advanced economies, percentage contribution was insignificant, albeit monetary contribution was found to be quite colossal and capable of impacting positively on national expenditures. Findings from the research revealed a positive and significant relationship between Ghana’s gold revenue and GDP (coefficient value = 9.574151593; p = 0.000, p < 0.05); and a positive but non-significant relationship between global gold revenue and global GDP (coefficient value = 527.3364872; p = 8.111, p > 0.05). Gold revenue accounted for nearly 97.64% of the variation in Ghana’s GDP from 1980 through 2020, while global gold revenue accounted for about 88.16% of the variation in global GDP from 1969 through 2020. During 2019, Ghana was the leading producer and highest-earner from gold sales in Africa; and the economy with the fifth-highest percentage contribution of gold revenue to GDP (9.52%); after Burkina Faso (17.37%), Mali (15.87%), Sudan (11.25%) and Guinea (10.02%) respectively. The statistical analysis confirmed and validated, to a large extent, the valuable contribution of gold revenue to national GDP, a clarion call for regulation and control of the activities of illegal artisanal miners to improve and actualise annual national estimates for total gold production volumes and revenues; the need for minerals and mining policy reforms and expeditious implementation of same to control environmental pollution and hazards. Dramatic transformation and an increase in recycling technologies are required to curb the accelerated depletion rate of gold reserves. It is imperative for the major gold-producing economies to take proactive steps towards the creation of economic parsimony in supply to positively affect the price per ounce of gold in the global market.