INTERACTION BETWEEN GOLD PRICES AND IMPORTS & TRADING VOLUME, BRENT OIL AND INTERNATIONAL TRADE
Gold, today, is not only a tool that people use for exchange as a physical commodity; but it has also been used as an alternative investment tool to stock exchanges, bonds and foreign exchange; and is very effective on these data sets as well. Across the global economy, the effects of changes in the prices of commodities such as gold and oil on the markets are generally realized through the exchange rate, Melvin and Sultan (1990), Furlong and Ingentina (1996), Hooker (2002) and Lee and Chang (2011). This is because, the price of gold and oil is again determined by the value of dollar, Bordo et al. (1992), Bağış (2016) and Eichengreen (1995).
Literature demonstrates that the gold prices move mostly along with the value of major commodities such as brent oil and the US dollar, Cashin et al. (1999), Zhang and Wei (2010), Simakova (2011), Bampinasa and Panagiotidis (2015) and Nirmala and Deepthy (2015). The effects of balance of foreign trade and savings, risky alternatives such as bonds and stocks on gold prices also cannot be denied. On the other hand, the imbalances between the demand and supply of gold also have the potential to fluctuate gold prices, e.g. Göçer et al. (2019) and İnal and Aydın (2016). However, how these relationships or interactions are measured is just as important. In the literature, there is no consensus on the direction and magnitude of these effects.
2. DESIGN AND METHOD
Among the many variables that affect gold prices (based on empirical evidence and literature reviews), the main variables such as gold import quantity, gold market index, gold trade amount, foreign trade index, republic gold price (TL), brent oil barrel price, euro and dollar exchange rates are considered as independent variables in the model. In our model, the dependent variable is bullion/gr gold price (TL).
2.2. QUANTITATIVE ANALYSIS
The regression model established to measure the mathematical relationship is tested in many ways with the variables. The variables that disrupt the model are, subsequently, removed from the model. Consequently, a final version is accepted. Meanwhile, because it will be difficult to predict the effect of all these elements together; different terms are added to each regression analysis. Using a final version of the model with few of these elements that we think affects the price of gold, we aim to create simple regression analysis based on data from 2000-2017 in Turkey and try to reach a conclusion.
Exchange rate volatilities and the relative values of national currencies may have a huge negative impact on input costs and trade, inflation rates and ultimately the overall economic activities of countries. This would, hence, put all the decision-makers and market players in the country, from investors to the economists and policy makers, in a search for more stable new investment and trading instruments. As a critical alternative to dollar and euro, gold is often the first option that comes to mind. In fact, gold as a means of exchange and investment has always been a valuable commodity starting from the early ages. In addition, in case of any economic crisis or political development, gold also moves much slower than dollar and Euro, both ways. This allows people, investors and legal entities to trust gold much more than the other currencies.
3. FINDINGS AND DISCUSSION
The issue of many alternatives that economists can use as a precaution to prevent currency fluctuations caused by economic crises and the loss of value due to exchange rate differences is a major concern today. Using gold instead of popular currencies such as dollar or Euro, as an alternative common currency, is one of the popular ideas economists and policy-makers discuss today. In this study, we aim to reach a conclusion regarding these variables’ interaction and relationship, by applying regression analysis over a pre-determined data set.
3.1 DISCUSSING the FINDINGS with the LITERATURE
The rate of explanation power of the independent variables in this model is about 67%. When we examine the coefficients of the variables in the model, we observe that changes in gold market index, gold import amount and gold transaction amount have negative effects on gold price; while changes in the gold of the republic, brent oil price and foreign trade index affect the gold price in the same (positive) direction. The simple regression analysis reveals that; while price of the republic gold, price of brent oil and changes in the foreign trade index all affect the gold price in the same (positive) direction; changes in the gold market index, the amount of gold transactions and the amount of gold imports affect the same variable in the negative direction.
The relative value of gold and its place in the financial system have also been continuously changing in accordance with the economic and social transformation throughout the ages. In some periods, especially during the wars, the value of gold exceeds its economic and financial aspects; as a result, the commodity has also been used for political purposes. Occasionally, there have even been circumstances in which gold has lost its effect in accordance with the needs of the period. Nevertheless, all these economic, political and sociological developments have never resulted in a complete loss of value for gold. Gold is still used today for investment purposes, at least as a store of value tool.
4. CONCLUSION, RECOMMENDATION
This research, overall, aims to model and statistically explain the economic relationship between quarterly gold price and particular macro and financial variables, between 2000 and 2017, in Turkey. Our main objective is to investigate whether gold import quantity, the gold market index, gold transaction volume, foreign trade index, and the quarterly changes in USD exchange rate and EURO exchange rates, as a whole, have any significant effects on the price of gold. Meanwhile, we also aim to investigate whether there is any mutual relationship between these variables.
When we examine the coefficients of the variables in the model, we observe that changes in gold market index, gold import amount and gold transaction amount have negative effects on gold price; while changes in the gold of the republic, brent oil price and foreign trade index affect the gold price in the same (positive) direction. The simple regression analysis reveals that; while price of the republic gold, price of brent oil and changes in the foreign trade index all affect the gold price in the same (positive) direction; changes in the gold market index, the amount of gold transactions and the amount of gold imports affect the same variable in the negative direction.