The Impact Of Money Supply On Gold Price In China

"Money is inherently gold and silver", this words reveal as a kind of currency, gold has a lot of advantages when regarding as a measure of value and mean of circulation. However, because the supplies of gold could not meet the needs of growing economy, the gold standard was replaced by the gold exchange standard. Then through three U.S. dollar crisis, the Bretton Woods system went to end, which meant the gold finally got out of the area of circulation and its currency property was hidden at last. Until the late1970s, the era of non-monetary gold came into being. Due to the non-state traders became the main role of the market, the trading volumes of gold grew to be active in many famous financial markets, such as the London Bullion Market, the Zurich gold market and the U.S. gold market and so on, so the gold price was dominated by the equilibrium of gold supply and demand in long term and value investors and speculators in the short term at the same time.Opened up in2002, Chinese gold market was gradually widely accepted by Chinese investors, who enhance the mobility of gold, especially after the U.S. financial crisis swept the globe in2008. So the Chinese government planned to utilize a series of money policies to stimulate the economy, in order to cheer up the market. Nevertheless, something unexpected new situations happened like serious inflation, the pressure of currency revaluation and the reducing of domestic exports, those made the domestic and foreign capital flowed into the gold market, then gold demands surged and gold prices experienced significant increases, and those signals indicated that even if the gold was withdrawn from circulation, but its "natural" superior properties still lead it to occupy an important position in the financial markets. Based on it, the factors influencing gold price should be a hot topic currently. The main content of the paper is to discuss the impact of money supply on the gold price in systematic order.This paper consists of four parts.The first part is to introduce the general situation of the background when writing, the theoretical and practical meanings of this study, to find out virgin part after reviewing of previous literature, and to present the main content, the structure and the new ideas of the paper.The second part focuses on how the money supply acts on the price of gold through rates, exchange rates, securities markets and inflation factors in theory and explaining them by take advantages of the classical theory in the world.The third part is going to use the empirical analysis, qualitative and quantitative ways to study the main subject. After explaining how money supply has an effect on gold price in theory and collecting the useful data in Chinese gold market, the paper put the money supply into the model, which is used for studying gold price factors in the market, in order to identify how important the new explain element to gold price. Base on the adjusted data, this paper uses descriptive analysis, the stationary test, Granger causality test and so on to check the quantity connection of the money supply and price of gold in different angles and whether the finally results is stable or not. According to the tests, some conclusions and its explanations are presented.The fourth part is conclusion and suggestion part. Through the theoretical analysis and empirical test, this paper seeks out that the significant positive relationship exists between the money supply and the price of gold; money supply in the short term lag items has an obvious positive effect on the return of gold; the money supply is the Granger reason of the price of gold and so on.Even though the results are satisfied, there are still some shortcomings in the paper. For example, the data is adjusted by many times, so some information is lost in the final result, which will make the conclusion not that perfect. That is the reason the subject of this paper is waiting for something new ways to test.