WHAT DRIVES GOLD, GOLD PRICES AND ITS RETURN?"

Abstract

Purpose-This study is dedicated to find out and asses various price determinants of Gold and the behavioral perspective of the individuals involved in it. This study is aimed to analyze the price and return determinants of Gold, along with its various properties such as inflation hedge and portfolio diversifier. Methodology/sample-The characteristics of Gold were assessed by implementing various statistical models such as Skewness and Kurtosis 1, 2 and 3 to find out the skew and kurt behavior of the Gold returns. Pearson Correlation and Kendall’s Tau were used to find out linear and nonlinear co movement of Gold return, with other commodities such as Oil and Silver, and macroeconomic variables such as CPI, LSM, and exchange rate. Furthermore Multiple Linear Regression (MLR) was applied to regress the Gold return on CPI, LSM an exchange rate to assess and analyze the Gold beta. Along with this, to analyze the behavioral perspective of the individual, a few interviews were conducted. Findings-The analysis and comparative results clearly suggested that the significant variables are consumer price index (CPI) and interest rate. The insignificant variables are Large Scale Manufacturing, KSE-100 index and Exchange Rate. Significance of inflation in determining gold returns highlights the ability of gold to shield against inflation, at the time of high inflation the interest rates also go up, in this case high interest rates lower down the future value of cash flows in today’s term. Practical Implications-The outcomes of the research might help the qualitative portion of the study concluded that general public and investors have increased their proportion of investment in Gold, considering the increasing trend of its prices.