DETERMINANTS OF GOLD PRICES IN PAKISTAN

Abstract

Purpose: Gold is considered one of the precious metals in the world and gold has a special significance in all ages. The importance of gold can be understood from the saying “all that glitters is not gold”. The gold prices during last twenty years have increased by nearly 1100% in Pakistan. The aim of this research paper is to identify the factors that affect the price of gold in Pakistan and analyze the extent of sensitivity of gold prices to some of the prominent variables. Methodology: In this research paper, the researcher has used only secondary data method. The data is taken from official websites for last twenty years starting from 1994 to 2013. Least square method of multiple regression model is used to achieve the objective of this research. The researcher used seven independent variables that affect the gold prices, which are inflation rate, interest rate, exchange rate, silver prices, per capita income, stock market performance, and domestic savings. Findings: The result of this research study is drawn by analyzing the time series data of variables from 1994 to 2013 using E-Views 7 Software. The empirical results found there is a positively significant relationship between inflation rate, exchange rate, silver prices, and stock market performance on gold prices, while a per capita income is negatively significant. This research paper also found there is an insignificant relationship between interest rate and domestic saving on gold prices. Practical implications: This research will help investors to make good decision about their investment whether they invest in gold market or in other options such as stock and oil market. The research data will also provide great information to the researchers who are conducting research on the same topic and this research will provide guidance to those who are seeking the favorable conditions for investment in gold market in Pakistan.