Economic Variables Affecting the Gold Price : The Partial Effects of Linear Models

摘要

Golds are typical products whose price is determined by the aggregate demand and constant supply in the market. Simultaneously, golds are a method of investment and a device for risk-aversion. Thus, indicators reflecting motivations for investing in or holding on golds will impact gold prices theoretically. This paper focuses on economic variables and their partial effects on gold prices, using multivariate regression, step-wise regression, and linearity diagnostic plots to determine the ideal predictive variables impacting gold prices. The 10-year treasury inflation-indexed security, the U.S. deficit, and international political events such as North Korea’s nuclear tests or the Libya War have both statistically and economically significance in forecasting gold prices monthly, capturing 92.14% of the variations in gold prices. This paper concludes concretely that economic variables are predictive to the gold price and gold prices are indicative to macroeconomics.