Factors influencing gold demand: Evidence from developing countries

Abstract

Gold serves not only as a store of wealth but also as a safe hedge against socio-economic risks, particularly during times of uncertainty. The recent surge in gold demand, despite its high price, may contribute to overall macroeconomic instability, as it could exacerbate the burden of external debt and lead to the depreciation of a country’s sovereign currency. This study investigates the determinants influencing physical gold demand in 10 developing countries across different continents over the period from 2008 to 2020, utilising data from World Gold Council (WGC) reports and the World Bank database. By employing various regression models - Pooled Ordinary Least Squares, Fixed Effects, and Random Effects-for a micro panel dataset, the study provides further empirical analysis, suggesting several important factors influencing gold demand in these developing economies, such as gross domestic product (GDP), GDP per capita volatility, and the real interest rate. The results offer significant implications for development policy, financial intermediation, and the gold market in developing economies.