Determinants of the Physical Demand for Gold: Evidence from Panel Data

21 Pages Posted: 26 Feb 2008

See all articles by Martha Starr

Martha Starr

American University - Department of Economics

Ky Tran

affiliation not provided to SSRN

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Abstract

Although the role of gold in the world economy has declined since the gold standard was abandoned, it remains important as a central bank reserve, a hedge against risks, a barometer of geopolitical uncertainty, and an input for jewelery. While portfolio demand for gold has been well studied, determinants of physical demand are less understood. Certain emerging-market countries such as China and India import substantial amounts of gold, with several factors that may contribute: low financial development, need for precautionary savings and/or strong cultural valuation of gold itself. This article uses panel data on gold imports of 21 countries to examine determinants of physical demand. We find that determinants of physical demand differ from those of portfolio demand, and that they differ between the developed and developing worlds.

Suggested Citation

Starr, Martha and Tran, Ky, Determinants of the Physical Demand for Gold: Evidence from Panel Data. World Economy, Vol. 31, Issue 3, pp. 416-436, March 2008, Available at SSRN: https://ssrn.com/abstract=1096761 or http://dx.doi.org/10.1111/j.1467-9701.2007.01091.x

Martha Starr (Contact Author)

American University - Department of Economics ( email )

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Ky Tran

affiliation not provided to SSRN ( email )

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