I wish to the price determination techniques used for fixing the price for Gold.
Hi
I do not know if this research is helpful.
Article The crude oil market and the gold market: Evidence for coint...
Like everything in economics, the answer is simple: supply and demand :). That being said, one has to examine those two parts of the equation. Supply side is not very volatile, production is fairly steady, and any major shift is supported by increase of the price of gold, which leads to production techniques that are expensive on a per ounce basis (similar to oil price increase leading to fracking). Demand on the other hand, can be devided in the following groups - coin and bullion, jewellery, electronics, net ETF flows and net central bank purchases. The largest and most important are jewellery segment and coin and bullion segment in Chinese and Indian markets. What is a demand driver? First of all, regulation, especially for India, which tries to cap gold imports as it simply means hard currency export for a non yielding commodity. Furthermore we have disposable income issue in those countries, as well as USD to local currency exchange rate. Price of gold in those markets is relevant in local currency terms, not USD/ounce price.
ETF, central bank net purchases depend on economic outlook, inflation outlook and geopolitical risk. More sopisticated investors take long positions in gold as a hedge of above mentioned risks, as gold price is negatively correlated with economic growth or lack thereof, positively correlated to geopolitical risks and traditionally seen as an inflation hedge.
To conclude, one may create a model incorporating above mentioned factors, and taking annual demand information over time, available at gold.org web site.. Hope this helps :)
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