Analysis of demand side factors determining gold price: An application for Turkey

Gold is a valuable mine that has always managed to be important in the world. It has served people for different purposes for centuries. This little metal on earth has a physical and chemical properties such as being able to substitute money everywhere, not to be spoiled, recycled, not to be eroded, easy to handle with electricity and heat, and so on. The physical and chemical properties of gold make it a very wide area of use. It has been used as a means of exchange in the monetary system for many years and is heavily traded on the international financial market. It is still being used as reserve tool by many countries in the world. A comprehensive explanation of the history of gold and gold has been made in the study. Besides, the areas of usage of gold in the world and Turkey and gold markets are explained. The causes of gold's appeal and the factors influencing gold are mentioned. In this study, we are dealing with the demand direction of gold since the supply direction of gold has an intellectual structure. Monthly data were used in this study covering the period from March 2003 to May 2016. Variables considered to affect gold prices were analyzed using Dow Jones index, silver prices, crude oil prices, BIS, real effective exchange rate, inflation rates FMOLS, DOLS and CCR cointegration tests. As the inflation and exchange rate variables are static series, they are not included in the model. Seasonally adjusted, logarithmic series were used in the study. ADF (1979), Phillips-Perron (1988) and KPSS (1992) unit root tests were used to test whether the series were stationary in the study. Johansen cointegration test was conducted. In order for the Johansen cointegration test to be carried out, the series have to be stable at the same level. For this reason, the static series inflation and exchange rate are not included in the cointegration analysis. When the estimation results are examined, it is seen that inflation, exchange rate and petroleum variables are not significant. However, the results obtained from the regression estimation are similar to the results from the co-estimation. Unlike the cointegration analysis, the exchange rate appears to be insignificant in the regression model. Changes in the Istanbul Stock Exchange negatively affect gold prices, while silver prices and changes in the US stock market are positively affecting gold prices. Keywords: Gold, Gold Prices, Gold Demand