Gold as an Investment Asset

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ACKNOWLEDGEMENT

I would like to thank my supervisor for supporting me throughout my project and giving his valuable suggestions. Finally thanks to all my friends and family for their utmost support and inspiration.

DECLARATION

I, [type your full first names and surname here], declare that the contents of this dissertation/thesis represent my own unaided work, and that the dissertation/thesis has not previously been submitted for academic examination towards any qualification. Furthermore, it represents my own opinions and not necessarily those of the University.

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ABSTRACT

The research study has highlighted the importance of gold by analyzing its uniqueness and checking whether it is independent from the business cycle and the financial markets during expansion and recession periods. The paper analyzes the volatilities in returns of gold and other precious metals that include silver, copper aluminium, zinc, nickel and lead. The data has been collected for more than 30 years to examine the interactions of gold and other commodities with the financial assets and the macroeconomic variables. The data has been collected for different periods of time in order to get the true picture of economic environment and evaluate the appropriateness of the assets to it. The data analysis show that the volatility of gold can be largely explained by the macroeconomic factors however, volatility in other metals cannot be determined by the macroeconomic variables. The research study has highlighted the value of the gold as the strongest precious metal that does not get affected with the changes in the business cycles or the expansion and recession in the financial market. The research study has used the simple correlation and the VAR model for checking relationship between the macroeconomic variables and the financial assets.

The important conclusion can be made that the return of gold is independent from the macroeconomic variables and the financial assets. The result of the static correlation shows that there is an important relationship between the values of U.S dollar and the gold in expansion phases. However, the Variance Autoregressive model does not support this hypothesis. In the periods of recession, the gold has proved to be independent from the value of U.S dollar. The value of gold has been underlined as a strategic asset. The results of the research study show that the gold is an excellent risk diversifier over all the phases of the business cycles. The static and the dynamic correlations show imperative connection among the financial assets, macroeconomic variables and the commodities.

The relationship between the variables is more common when the economic environment is unbalanced. However, this relationship has observed to be unstable when the economic environment is favourable. The value of gold has proved to be independent from the economic instability and the financial distress. Moreover, the empirical result suggest that the gold remained protected from the business cycle and the financial assets as compare to other metals and commodities.TABLE OF CONTENTS

ACKNOWLEDGEMENT2

DECLARATION3

ABSTRACT4

CHAPTER 1: INTRODUCTION7

Background of the Research Study7

Aims and Objectives of the Research Study7

Significance of the Research Study7

CHAPTER 2: LITERATURE ...