ABSTRACT
“The purpose of this study is to examine the effect of macroeconomic variables on gold prices in Ghana”. The study used “made use of monthly data” sourced from “Bank of Ghana, Ghana statistical service and” World Bank website. The time series estimation techniques were adopted in order to examine the effect of macroeconomic variables on gold prices The study shows that Exchange rate significantly “affect Gold prices in the long run. Crude oil prices, Inflation and Interest rate did not significantly affect economic growth in the long run. The study” also found that that Crude oil prices and its immediate two lagged values in the short run “significantly and positively affects Gold prices. Exchange rate, the third lagged value of Crude oil prices, Inflation and its three lagged values, and interest rate did not significantly affect Gold prices in the short run. It is thus “recommended that investors take advantage of the” results from the study to “their investment strategies” by considering both the external environment and as well the internal environment of the country.
It was further recommended that domestic firms learn from the foreign firms that are experienced through a collaboration in the supply chain where there is the tendency that foreign firms transfers the technological know-how and management to local suppliers they deal wi.th, so as to enhance the technological transfers and skills.
CHAPTER ONE INTRODUCTION
Background to the study
Ghana has been endowed with significant mineral deposits of which gold “is by far” being the most important mineral mined (Bermudez- Lugo, 2006). Ghana is still ranked as the “world’s 10th and Africa’s 2nd largest producer of gold, with current production estimated in excess of 2.81Moz” as at June 2018; rising from 2.54Moz in 2017 (Joseph &Wang, 2018).
Gold as a metal or mineral has both commodity and monetary attributes which makes it a very important natural mineral in the financial markets. Gold as a recognized international trade commodity is considered as a significant item in central bank reserves in the world economy and investment in it is seen as a very formidable venture for governments and private entities because of its good store of value (Nadeem et al 2014; Tran & Starr, 2007). Despite the value of this precious mineral commodity, “its price remains closely watched as an indicator of changing risk perceptions”.
According to Nadeem et al. (2014), the price of gold is a very “good indicator to evaluate” the economic health of both developed and developing economies. When gold prices are high, investors assemble them to prevent them from being subjected to inflation hence indicating an unhealthy economy; whilst in the opposite, investors will switch “to other profitable investments like bonds, real estate”, among others indicating a healthy economy due to the low gold prices (Nadeem et al., 2004). As established by some literature, gold prices are for diversifying portfolios, hedging and risk mitigation. Le and Chan (2011) indicated that investing in gold reduces financial market risk. In view of this, many investors are likely to invest in the commodity for the benefitof their companies among many other reasons. One inevitable point opined by Mamcarz (2015) is that the decision to invest in gold rests not on only knowing its price, but also the factors that influences gold price fluctuations. Sharing in the viewpoint of the above researches, it is therefore very “important to understand the” fluctuations in gold prices and the macroeconomic variables that play a role in it (either positively or negatively); since “gold price is a strong indicator of the” well-being of the economy.
Research Problem
The fluctuations in gold prices are very critical to investor knowledge, as these will influence the level of investment into this beneficial commodity for a country. The identification “of the relationship between macroeconomic” factors and gold prices makes it possible to explain changes in gold prices in the past and to make forecasts. This is of great importance for “both speculators and investors” committing capital in the long term. Several research works across the globe have brought to the pool of knowledge on the factors that affect gold prices. Research works by Wang et al. (2011), Le and Chang (2011), Levin and Wright (2006), Nadeem et al. (2014), Tully and Lucey (2007) in countries like Pakistan, USA, and the Asia, have touched on different “macroeconomic variables such inflation, oil prices, interest rates, exchange rate and” others to have relationships with gold prices; however, report from Ghana is lacking.
Ghana is a notable country rich in the precious mineral gold in Africa. The gold as a commodity and its “prices play a significant role in the” determination “of the gold prices” in the country together with other commodities such as oil, cocoa and timber. Though gold as a commodity is significant in Ghana’s developing economy, literature and previous research works on the commodity have not focused on how its prices fluctuate and what relationship it has with other
“macroeconomic variables such as interest rates, exchange rates, inflation, oil prices and” other “macroeconomic variables. Most of the research” works including that of Tweneboah and Adam (2008), Adu (2012) among others have focused on the effect of gold prices as a macroeconomic variable on stock prices. This has led to a dearth of information on how macroeconomic variables impact or affect gold prices in the country. Therefore, “this study seeks” to address the identified gap in research studies with reference to the commodity by looking at the impact of selected “macroeconomic variables on the gold prices in” Ghana.
Research Objectives
“The objective of the study is to find out the effects of macroeconomic variables on” gold prices in Ghana. The study will specifically aim at:
- Analysing “the impact of exchange rate on gold prices”.
- Analysing the impact of “crude oil prices on gold prices”.
- Identifying the “impact of interest” rate on the “gold price”.
- Ascertaining “the impact of inflation on the gold prices”.
Research Hypothesis
In view of the objectives of this study, four research hypothesis are assumed. These include:
- Hypothesis Assumed (H0): Gold prices do not depend on exchange rate in Ghana.
- Hypothesis Assumed (H0): Gold prices do not depend on crude oil prices in Ghana.
- Hypothesis Assumed (H0): The interest rate does not affect gold prices in Ghana.
- Hypothesis Assumed (H0): The inflation rate does not affect gold prices in Ghana.
Justification for study
In justifying the importance “of this study the following are expected that”;
- The findings “of this study” will help identify the “main macroeconomic factors that” affects gold prices “in Ghana, taking into consideration” inflation rate, “exchange rates, crude oil prices and interest rates”.
- The study seeks to provide reliable findings to investors and the government policy makers in gold investment “using more recent data points” (2009 – 2018) “especially considering the recent drastic changes in the Ghanaian” macroeconomic variables and how it affects the fluctuations “in the prices of gold”.
- The findings of this “study will add to the pool of literature on the” commodity in question and bridge the gap that exists in literature with respect to gold prices fluctuations in Ghana
- The “findings of this study will serve as a” baseline research for students and “as a reference material” for use in future studies by other researchers.
Scope of the study
This study will investigate “the effect of macroeconomic variables on” gold prices. It has been noticed that “a number of researchers in various countries have found significant relationships between macroeconomic variables and gold prices” (see Nadeem et. al., 2014; Hashim et al., 2017; Sukri et al., 2015). These studies used multiple regression “models which incorporate macroeconomic variables as explanatory factors” being the independent variables. The “following methodological approach is adopted in this study for establishing the relationship between macroeconomic variables and” gold prices in Ghana.
Organisation of thesis
This research “is organized into five main chapters”. “The first chapter” will introduce the study which will comprise “the background of the study, the problem statement, the objectives, research questions”, brief methodology, significance, organisation and limitation of the study. “The second chapter” will review “the relevant literature, both theoretical and empirical”, on how macroeconomic variables and gold prices relate. Chapter three will concentrate on the methodology used, which will provide in-depth information on the research design, research strategy, “study population, sources of data”, econometric models “and analysis techniques, as well as the profile of the study area”. “Chapter four will presents the results, analyses, interpretation and discussion. Chapter five” will summarize the outcome of the research work and provide the “conclusion and recommendations”.
