Dynamicity of Gold Demands and its Most Important Determinants: A Panel Data Approach

The vital role of gold reserves in balance sheets of world central banks on one hand and its attractiveness in investments as a reliable property within an unstable macroeconomic environment on the other hand caused that this precious metal to be paid attention to by policy makers, researchers and market macroeconomic agents even after the collapse of Breton Woods System. This paper presents the estimates of factors that affect physical demand for gold and its dynamicity using panel data approach and Generalized Method of Moments for 25 during 2000-2011. Results indicate that the most important element affecting the demand for gold is the past times demands. Other determinants affecting the demand positively are per capita income, per capita income growth, inflation rate, private sectors credits and real interest rate. Change in variables such as per capita income volatilities, inflation volatilities and stock market value affect the gold demand negatively.