Volume/Issue/Review Month: Volume-XVII, Issue-II, Jul.-Dec.
Title: The Gold Price and Macroeconomic Fundamentals: A Nexus
Authors: K. Kalidasu , S. Prasad
Broad area: Finance
Abstract:
As the gold price is hiking tremendously, it is legitimate to validate the association between the gold price and economic stability. The study explores the relationship between macroeconomic indicators and the gold prices using panel data regression from 2000 to 2021. It focuses on two independent variables, the stock exchange and exchange rate, and two control variables, FDI net flow, and total reserve. Data sources include Bloomberg, OECD Statistics, and the World Gold Council. The pooled OLS regression findings highlight gold as a protective measure against economic uncertainty, with investors seeking refuge in gold when facing stock market or currency instability. There is little evidence to suggest that foreign investment inflows have a significant impact on gold prices, indicating that FDI does not notably affect gold prices in the short term. The statistically significant and positive impact of total reserves on gold prices suggests that central banks regard gold as a safe haven asset. An increase in gold holdings by central banks can signal confidence in the global economy, thus boosting gold demand. However, it is crucial to note that this model only captures the correlation between gold prices and the selected variables and does not account for other factors, such as geopolitical events or mining supply fluctuations, that could affect gold prices.