Economics Regression



Executive Summary

The gold price could be affected or determined by many factors. This research explores the extent to which changes in the interest rate, economy inflation, and changes in the crude oil prices affect the gold prices. Results showed that each of these variables have a significant impact on the gold prices determination. Demand for investment in the gold is influenced by these three factors that create fluctuation in the gold prices.

Economics Regression

Introduction

The availability of gold bullion allowed European nations to mint coin that was used as specie for the payment of goods. The use of gold allowed west European nations to expand their markets, although on a limited basis, into a global economy. However, gold was still limited in supply, and these nations turned to mercantilism to protect the wealth that they had gained.

This project is aiming to find out factors that could affect the gold price and finally demonstrate a regression model to determine the gold price. Currently, I assume the gold price is determined by inflation rate (US), interest rate (US), and oil price.

Research Problem and Importance

The gold price could be affected or determined by many factors, and this issue could become a trouble for this project. Since there are so many factors need to consider, it is necessary to pick the most influential factor for gold price, which could be a tough work (WGC, 2012). It is also possible that picked factor is not related to gold price, in this situation the process of re-selecting factor and re-collecting data should be serious issue.

Research Variables

Variables that have been included in this research are as follows.

Gold Prices (per 10 gram in $)

Inflation (in %)

Oil Prices (per barrel in $)

Interest Rate (in %)

Hypotheses

Research hypothesis for the proposed research are as follows.

H10: There is no significant impact of inflation in the economy on the gold prices.

H1a: There is a significant impact of inflation in the economy on the gold prices.

H20: There is no significant impact of oil prices on the gold prices.

H2a: There is a significant impact of oil prices on the gold prices.

H30: There is no significant impact of interest rate on the gold prices.

H3a: There is a significant impact of interest rate on the gold prices.

Methodology

The data for this research has been obtained from the World Gold Council website, Federal Reserve Board of Governors website, and Inflation Data website. The data for each of the above highlighted variables has been obtained for the period starting from January 1, 1978 to December 30, 2011. Data has been obtained on monthly interval basis for the defined period. World Gold Council website provided data for the Gold prices; Federal Reserve Board of Governors website was used to obtain data for the interest rate of US federal funds. Inflation Data website has been used to obtain information for the historical crude oil prices and inflation rate.

In this research, linear regression technique has been applied to analyze the data. Regression is a method of data analysis of ...