Empirical Study On The Value Preservation And Increment Property Of Gold From The Perspective Of Chinese Investors

Depending on the inference from the classical literature, short-run and long-run determinants of gold price, published by World Gold Council, i.e. if gold is a hedge to US inflation,then for investors in countries whose currency depreciates against to US dollar more than the amount necessary to offset the discrepancy between the inflation rates in the country and in US, holding gold is profitable, this paper theoretically analyzed the long-term relationship among gold price, inflation rate and exchange rate, and utilized the VECM to explore the quantitative relationships among fore-mentioned three variables in both China and US. The conclusion indicated that during the sample period, gold could hedge inflation risk in both China and US, but with a stronger hedge effect in US, which means for US investors, holding gold is more profitable than their counterparts in China.In order to probe short-term investment value of gold, this paper constructed linear regression model based on short-term determinants of gold price.Empirical conclusion showed that apart from slight urgent value-maintenance function, gold does not exhibit much obvious advantages in short-term investing. The short-run model demonstrated that gold has fairly weak substitute effect for domestic financial assets, makes little contribution to spreading risk in an asset portfolio, and embodies imperfect conversion period property, which, nevertheless, exhibits fully in US. In all, seeing from the angle of short-run, domestic gold price, in highly consistent with the international price, does not show much obvious interaction with domestic macro-economic variables, a phenomenon probably resulting from the weak power of China in international gold market.Based on previous analysis, this paper further investigated the change of value preservation and increment property of gold at different stages. By adding time dummy variables, the paper employed ordinary least squares (OLS) method to reach the estimation results:with the progress of the exchange rate system revolution in China, the interactions between gold price and domestic macro-economic indicators gradually conforms to theoretical state and gold plays a more evident role to hedge inflation; since late2008, when the financial crisis spread world wide, gold benefit Chinese investors more by embodying a sound property of value maintenance and appreciation; in late2011, however, amid increasing accusations of gold speculation, some international financial organizations sold large amount of gold, releasing speculative bubble accumulated for nearly ten years, and the gold price subsequently drop dramatically, the property of value maintenance and appreciation has been seriously weakened. The gold price, in fact, is very close to the inflation-proof price now. The Seasonal Autoregressive Integrated Moving Average model predicted that the gold price would continue to drop through drastic fluctuation in2014, and even below the inflation-proof price at the end of the year.Finally, taking into account of both empirical conclusions and current economic conditions in domestic and abroad, the paper proposed reasonable investment suggestions for Chinese investors.