EFFECT OF MACROECONOMIC FACTORS ON GOLD PRICE IN CHINA

Abstract

During the occurrence of a financial crisis, investors will take gold as an alternative to investment as gold is used as an instrument to hedge against inflation. To add, during an uncertain economic condition, investors will flock to the gold market as a protection against uncertainty. The factors specifically influencing the gold price are unknown before, during and after the financial crisis. The main objective of this research is to examine the relationship between macroeconomic factors with gold price before, during and after the financial crisis period in China. The period of the study encompasses a six (6) year period starting from years Jan 2013 to Dec 2014 as the period before the financial crisis, years Jan 2015 to Dec 2016 as the financial crisis period, and years Jan 2017 to Dec 2018 as the period after the financial crisis. This study is conducted on a monthly data basis. To measure the relationship between the macroeconomic factors and gold price, interest rates, inflation rates and crude oil prices have been selected as the independent variables. From this study, before the financial crisis, interest rate has significant relationship with gold price. On the other hand, during the crisis, these three factors have no relationship with gold price. Lastly, after the crisis, inflation rate and crude oil price have significant relationship with gold price.