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Abstract:
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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 jewelry. While portfolio demand for
gold has been well studied, determinants of physical demand are less
understood. Certain emerging-market countries like 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 paper
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. |