Abstract
The aim of this paper is to explore the reasons of gold price volatility. It analyses the information function of the gold future market by open interest contracts as speculation effect, and further fundamental factors including inflation, Chinese yuan per dollar, Japanese yen per dollar, dollar per euro, interest rate, oil price, and stock price, in the short-run. The study proceeds to build a Dynamic OLS model for long-run equilibrium to produce reliable gold price forecasts using the following variables: gold demand, gold supply, inflation, USD/SDR exchange rate, speculation, interest rate, oil price, and stock prices. Findings prove that in the short-run, changes in gold price does granger cause changes in open interest, and changes in Japanese yen per dollar does granger cause changes in gold price. However, in the long-run, the results prove that gold demand, gold supply, USD/SDR exchange rate, inflation, speculation, interest rate, and oil price are associated in a long-run relationship.
Highlights
Gold is a precious metal that has been used throughout history as a type of payment and has maintained its value over time
In the long-run, the results prove that gold demand, gold supply, USD/Special Drawing Rights (SDR) exchange rate, inflation, speculation, interest rate, and oil price are associated in a long-run relationship
6.1 Model Explanation The gold equilibrium model represents the relation between the gold price as a dependent variable and a set of independent variables: gold demand, gold supply, inflation, exchange rate, speculation, interest rate, oil price, and stock price
Summary
Gold is a precious metal that has been used throughout history as a type of payment and has maintained its value over time. The fear and uncertainty in the global economy pushed the gold price upwards, turning it to the most attractive asset for investors during all periods of crisis whether economic, financial or political. The price of gold is the mirror of the world economic situation. The gold price is exposed to sudden and large shifts which may affect markets globally. Understanding the factors influencing gold price volatility is important in both economic and financial terms. The gold price cannot be controlled, but it can be estimated and forecasted to develop future decisions . Several models were introduced to explain the gold price movements and predict their future values
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