Abstract
Beginning in the trough of 2000 and culminating in the peak of 2012, gold prices have exhibited a spectacular and unparalleled increase. Based on annual averages, the price of gold did not decrease at all over this 12 year period. The paper considers the various factors that have shaped the surge of gold spot prices over the last two decades using quarterly data. The analysis considers the role of structural changes such as China’s liberalization of the domestic gold market post-2003 and its impact on demand as well as other important economic factors such as risk, the role of quantitative easing and other fundamental factors in the gold market. The study investigates which of the macroeconomic and structural factors are responsible for the long term bullish trend in the gold price, of which China, global economic risk assessments along with quantitative easing have been crucial to understanding the almost uninterrupted price increase over the period.
Highlights
Introduction & BackgroundThe paper examines the long term gold prices over the last two decades and aims to determine the principal variables that best explain both the timing of the long bull market in gold and subsequent price fluctuations post 2011/12
The results of the analysis, confirm that the structural and macroeconomic variables of interest are of significance in explaining the gold price
The positive relationship found between the risk index and the gold price, a common element in almost all studies of the gold price remains a timeless verity in the gold market
Summary
The paper examines the long term gold prices over the last two decades and aims to determine the principal variables that best explain both the timing of the long bull market in gold and subsequent price fluctuations post 2011/12. While there is much in common, the common element in explaining both base and bullion metal prices over the last two decades is not short of the emergence of China as a consumer This structural change, which has added 1.3 billion consumers with rising incomes to global markets has been the principal driver of both base (Garnaut, 2012; Eyraud, 2015) and billion prices; but this has remained so for quite different reasons. NB: Sources of the data were extracted and compiled from various institutions (Gold - WGC & GFMS Surveys; Silver - GFMS, Thomson Reuters / The Silver Institute; Palladium & Platinum - Johnson Matthey; Copper - ICSG; Aluminum - ; Lead & Zinc – ILZSG; Crude steel -World Steel Association; and Nickel - WBMS) that specialize in the commodities The importance of this comparison stems from the fact that the intensity of use is an integral indicator ( from the demand side) of price behaviouriii.
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