Determinants of gold price in vietnam

  • Số trang: 72 |
  • Loại file: PDF |
  • Lượt xem: 24 |
  • Lượt tải: 0
nhattuvisu

Đã đăng 26946 tài liệu

Mô tả:

RESEARCH PROJECT (BMBR5103) DETERMINANTS OF GOLD PRICE IN VIETNAM STUDENT’S FULL NAME : LE THANH TAM STUDENT ID : CGSVN00015024 INTAKE : March 2013 ADVISOR’S NAME & TITLE : A. PROF. NGUYEN PHAN September 2014 Advisor’s assessment ..................................................................................................................................................................... ..................................................................................................................................................................... ..................................................................................................................................................................... ..................................................................................................................................................................... ..................................................................................................................................................................... ..................................................................................................................................................................... ..................................................................................................................................................................... ..................................................................................................................................................................... ..................................................................................................................................................................... ..................................................................................................................................................................... ..................................................................................................................................................................... ..................................................................................................................................................................... ..................................................................................................................................................................... ..................................................................................................................................................................... ..................................................................................................................................................................... ..................................................................................................................................................................... Advisor’s signature 1 ACKNOWLEDGEMENT Making a research is never easy. But what makes it fulfilling is the fact that there are people around who, without thinking twice are willing to lend their hands. To Dr. Nguyen Phan, our beloved adviser, for the unwavering support, guidance, and patience he has shown. To our families for their love, provisions, support, and understanding before, during, and after the research process. And to my classmates for providing the researches with amazing grace and wisdom that only they can give. With the abovementioned names, I would like to extend the utmost gratitude with all my hearts. 2 TABLE OF CONTENTS LIST OF TABLES ....................................................................................................... 5 LIST OF FIGURES ...................................................................................................... 6 ABSTRACT ................................................................................................................. 7 CHAPTER 1: INTRODUCTION........................................................................... 8 1.1. Problem statement ........................................................................................... 8 1.2. Research Objective ....................................................................................... 10 1.3. Research Questions ....................................................................................... 10 1.4. Research scope .............................................................................................. 11 1.5. Research methodology .................................................................................. 11 1.6. Data collection .............................................................................................. 12 1.7. Research structure ......................................................................................... 12 CHAPTER 2: LITERATURE REVIEW ............................................................. 13 2.1. Impacts of inflation ....................................................................................... 13 2.2 Impacts of exchange rate ................................................................................ 18 2.3. Impacts of demand and supply factors ........................................................... 21 2.3.1. International market ................................................................................ 21 2.3.2. Vietnam market ...................................................................................... 26 2.4. Gaps in literature ........................................................................................... 29 CHAPTER 3: RESEARCH METHODOLOGY ................................................. 30 3.1. Data sources .................................................................................................. 30 3.2. Variables ....................................................................................................... 30 3.2.1. Dependent variable ................................................................................. 30 3.2.2. Independent variables ............................................................................. 30 3.3. Modeling specification .................................................................................. 31 3.4. Methods of estimation ................................................................................... 32 3.4.1. Test for the statistical significance .......................................................... 34 3.4.2. Test for heteroscedasticity ....................................................................... 35 3.4.3. Test for multicollinearity......................................................................... 35 3.4.4. Test for the assumption of normality ....................................................... 36 3 3.4.5. Test for autocorrelation ........................................................................... 37 3.5. Hypotheses.................................................................................................... 38 3.5.1. Hypothesis 1 – CPI ................................................................................. 38 3.5.2. Hypothesis 2 – Interest rate ..................................................................... 38 3.5.3. Hypothesis 3 – USD/VND Exchange rate ............................................... 39 3.5.4. Hypothesis 4 – VN-Index........................................................................ 39 3.6. Limitation ..................................................................................................... 39 CHAPTER 4: EMPIRICAL RESULTS AND DISCUSSION ............................ 41 4.1. Test for the statistical significance................................................................. 42 4.1.1 Individual significant test: ........................................................................ 42 4.1.2. Joint significance test .............................................................................. 46 4.2. Test for heteroscedasticity ............................................................................. 48 4.3. Test for multicollinearity ............................................................................... 49 4.4. Test the assumption of normality .................................................................. 49 4.5. Test for autocorrelation ................................................................................. 51 4.6. Interpretation of regression results ................................................................ 52 CHAPTER FIVE: CONCLUSIONS .................................................................... 58 5.1. Limitation ..................................................................................................... 58 5.2. Suggestion .................................................................................................... 58 5.3. Recommendation .......................................................................................... 59 5.4. Conclusion .................................................................................................... 60 REFERENCES ........................................................................................................... 62 APENDIX 1: Data of variables from January 2009 to June 2014................................ 66 APENDIX 2: Global and Domestic Gold Price in Vietnam ........................................ 70 APENDIX 3: Recent Gold Price Developments: May 2012 – March 2013 ................. 71 4 LIST OF TABLES Table 1: Gold Companies in the Forbes Global Top 2000...................................... 21 Table 2: Gold production countries from mining in 2013 ...................................... 22 Table 3: Global mine production of gold from 2005 to 2013 (in metric tons) ........ 23 Table 4: Consumer demand Viet Nam four quarter totals (tons) in 2008-2013....... 27 Table 5: The result of individual significant test on CPI ........................................ 42 Table 6: The result of individual significant test on VN-Index ............................... 43 Table 7: The result of individual significant test on Exchange rate ........................ 44 Table 8: The result of individual significant test on Interest rate ............................ 45 Table 9: The result of joint significant test ............................................................. 46 Table 10: The result of Test for heteroscedasticity ................................................. 48 Table 11: The result of Test for multicollinearity................................................... 49 Table 12: The result of Test the assumption of normality ...................................... 50 Table 13: The result of Test for autocorrelation ..................................................... 51 5 LIST OF FIGURES Figure 1: Movements of Vietnamese gold price and nominal interest rate from 01/2009 to 06/2014 ................................................................................................... 52 Figure 2: Movements of Vietnamese gold price and USD/VND rate from 01/2009 to 06/2014 ................................................................................................................ 53 Figure 3: Movements of Vietnamese gold price and Vietnamese Consumer price index (CPI) from 01/2009 to 06/2014 ....................................................................... 54 Figure 4: The movements of Vietnamese gold price and VN-Index from 01/2009 to 06/2014 .................................................................................................................... 55 6 ABSTRACT With the investment demand for gold being on the rise, and a complex set of factors influencing the investment demand for gold, forecasting the price of gold is seen essential but difficult. In addition, although Vietnam gold prices have a huge influence from world prices but still have negatively correlated in some periods. The paper makes an attempt to identify the factors influencing the price of gold by using the monthly prices of gold for the period from 2009 to 2014. The paper then tries to identify the factors influencing the price of gold using the multiple regression analysis. The researcher used four independent variables that affect the prices of gold in Vietnam which are Vietnamese consumer price index, exchange rate, interest rate, and VN-Index. The empirical results have found there is negatively significant relationship between VN-Index on gold prices, while CPI, exchange rate and interest rate are positively significant. The results of the study are valuable for both academic and investor. Keywords: determinant, gold price, CPI, exchange rate, interest rate, VNIndex 7 CHAPTER 1: INTRODUCTION 1.1. Problem statement Gold, one of the most precious metals mined has been widely used as a currency in the past. Today though its role for monetary purpose is limited, it is highly valued as a commodity for some industrial purposes and is widely bought as jewelry and seen as an asset for investment. Globally, the gold that is produced is consumed 50 percent as jewelry, 40 percent in the form of investments and 10 percent by industry (Robert, 2006). Gold has played an important role in the history throughout the world. The reason is because gold is scarce; therefore gold manages to retain its value. Due to this, gold has been commonly used as a safety in the case other form of money is constantly devaluing. Investing in gold is usually associated with the fears of high inflation period and political risk. Gold is in fact one of the most liquid asset during political risk, such as war, and etc. Gold is a natural resource that has a notable value for investments. Investors invest in gold for various reasons, which vary from hedging purposes to speculative investment. There is risk in every investment, considering gold price fluctuates constantly in the short run and considerably stable in the long run (Levin and Wright, 2006). As the price of gold fluctuates less in the long run, gold can be used as hedge instrument against inflation in the long run. Levin and Wright (2006) found that the price of gold in the long run follows the general price lever proportionately, that one percent increase in the US general price level leads to one percent increase in the price of gold. Gold is a long run hedge against inflation is also backed up by the findings by Gosh et al. (2004), which found that the price elasticity of gold, compared to US CPI is 1.1. Another studies proposed that gold is 8 not an effective hedging tool against inflation in the short run, as the price of gold fluctuates too much. Gold return is independent of any other asset, because gold is believed to have negative beta (Levin and Wright, 2006). It means that the return of gold goes in the opposite direction with the market return. Therefore, gold is a good portfolio diversifier. Jaffe (1998) found out that adding 5-10% of gold investments to a portfolio provides a better return compared to portfolio without gold at all. As gold is an important form of investment nowadays, it is important to know the factors that determine the price of gold. There are three gold pricing models available conducted in the research: Macroeconomic approach, Speculations/Rationality of gold price movements approach, and Inflation Hedge approach. Macroeconomics approach explains that the movements in the price of gold are caused by macroeconomics variables. Speculation or rationality of gold price movements approach analyses whether any speculation or rationality assumed has an effect in the gold price movements. The inflation hedge approach concentrates on the movement of price of gold based on the inflation rate. This thesis will provide past empirical research regarding these three methods. The inflation hedge approach will be used in conducting this research. Vietnam is the world’s 47th largest gold producer (British Geological Survey, 2010), and the demand for gold in Vietnam keeps on increasing. With Vietnamese economy, which is affected by the appreciation and depreciation of other currency, the price of gold in Vietnam is very vulnerable. Therefore, in this research, the author would like to test the factors that determines the price of gold in general, affects the long run and short run price of gold in Vietnam. Therefore, in accordance with the outline above, this research is titled as: “Determinants of Gold Price in Vietnam” 9 1.2. Research Objective The aim of this research is to study the determinants of the price of gold in Vietnam. The research is conducted using some macroeconomic variables, which are believed to affect the price of gold in the long run. The results of this research will then be evaluated with the previous study in the same field. To achieve this overall goal requires meeting the following specific objectives: (1) The first objective is to study and quantify the impact of variables on gold price. We will identify and examine the main factors affecting gold price in Vietnamese market. Some studies on other markets in the past defined various determinants and movements of gold price. In this research, we want to give a clear view on the most important divers having effect on Vietnamese gold price from January, 2009 to June, 2014. (2) Based on the thorough understandings about the determinants of gold price in Vietnam, the second objective is to suggest appropriate solutions to help investors reduce the risk and gain return when investing in Vietnamese gold market and help the government manage better the price of gold. 1.3. Research Questions This research is aimed at trying out and testing the impact of determinants affecting gold price in Vietnamese market. The study attempts to answer the research questions as follows: - Question 1: What are the determinants of gold price and to what extend do they affect gold price in Vietnamese market in period of time from January, 2009 to June, 2014 10 - Question 2: What are the solutions for investors to reduce the risk and gain return when investing in Vietnamese gold market and for the government to manage the gold price more effectively? 1.4. Research scope This research aims to analyze the determinants of the price of gold in Vietnam, which is based on the data of price of gold from the period 2009 to 2014. Besides that, the author is focusing on the factor that determines the price of gold for investments and hedging purposes. 1.5. Research methodology In an academic research, there are two main method choices: qualitative or quantitative (Saunders et al., 2009).Quantitative research assumes that facts have an objective reality, variables can be identified, and their relationships measured. A quite understandable point as quantitative data is all about numbers. The purpose with this approach is to generalize facts and understandings, and not to think too much about the individual case, but instead what it means for the science in general, (Glesne and Peshkin, 1992). Quantitative data can be described as research in which the focus lies on numbers, statistics and facts. They can be obtained from surveys or data already collected and presented by others (referred to as secondary data). As the name refers to, the quantity or mass of data handled should be substantial and essential. In general, quantitative data gives a broad, general answer to the problem, while qualitative data lets readers get deep into the question and understand why and how things are as they are (Jacobsen, 2002). According to Creswell (2008), quantitative researches relies on empirical data, objectivism and in general tries to verify theories and use standards of validity and reliability. The quantitative method is therefore more appropriate for this research’s purpose because this study bases on objective historical data. Surveys or questionnaires are conducted; instead this study used secondary data to reach to 11 empirical findings. Because this study is looking for a general answer to its problem, this method was chosen as the most suitable. 1.6. Data collection After specifying all the dimensions above, the next step is to select a type of data and its sources. There are three categories of literature sources available: primary, secondary and tertiary (Saunders et al., 2009, p. 69). The current research requires utilizing of secondary data, such as books, journals, newspapers and databases. The data used in the modeling are monthly observations from the last day of the month covering the period from January 2009 to June 2014. Monthly samples are chosen because many studies did the same with the short period of time, for example, studies of Pindyck (1993), Gosh et al. (2002), Kolluri (1981), etc. In addition, the data related to interest rate, consumer price index, exchange rate are not observed daily or weekly. 1.7. Research structure The thesis is organized in five chapters, including this introduction. Chapter 1 gives an overall picture of the subject related topic background, topic relevance, relevance of research question, overview of dissertation structure. Chapter 2 reviews theories of gold price’s determinant. Chapter 3 describes data collection and methodology in which the model for estimation and method of estimation are outlined. Chapter 4 presents the results from analyzing data and discussion. Chapter 5 briefly draws the conclusion, recommendations and limitations of the thesis. 12 CHAPTER 2: LITERATURE REVIEW In this chapter, an overview of international and Vietnamese gold markets in history will be discussed, as well as the review on previous related literature and developed hypotheses. We are going to look into the researches done on determinants of gold price, which are CPI, exchange rate, interest rate, and VNIndex. In these fields, there have been a number of researches done based on different purposes, such as the influence of inflation rate on GDP, impacts of exchange rate on international trade, influences of demand & supply factors on gold price, and so forth. Thus, we are going to investigate how these factors are influencing gold as a medium to reduce investment risks. 2.1. Impacts of inflation Dipak et al. (2002) published a paper in researching gold as an inflation hedge. He has explained that inflation hedge price is the dollar price that gold would have to be in order to maintain its purchasing power. In his findings, the nominal price of gold was $384 per ounce in January 1982 and $283 in December 1999. He concluded that gold was not a short-run inflation hedge between these years. He had suggested, from his theoretical model, that sizeable short-run movements in the price of gold are consistent with the gold price rising over the time with the general rate of inflation. In addition, from the monthly gold price analysis data (1976-1999) and co-integration regression techniques provided by Dipak et al. (2002) have confirmed that gold can be regarded as a long-run inflation hedge and the movements in the nominal price of gold are dominated by short-run influences. Later on, Worthington& Pahlavani (2006) also conducted a study on gold investment and inflation hedge, and they published it with the title “Gold Investment as an inflationary hedge: Co-integration evidence with allowance for endogenous structural breaks”. They used the monthly price of gold and inflation in the United States from 1945 to 2006 and from 1973 to 2006, which was newer than 13 the data presented by Dijak et al. (2002). Furthermore, they were stressed that their analysis in using monthly gold price data (1976-1999) and co-integration regression techniques provides empirical confirmation that gold can be regarded as a long-run inflation hedge. They were concluded that inflation hedging quality of gold depends on the presence of a stable long-term relationship between the price of gold and the rate of inflation. Eric J Levin and Robert E Wright (2006) studied about the determinants of the price of gold in short-run and long-run. According to Eric and Robert (2006), they developed a theoretical framework based on the simple economics of “supply and demand” that is consistent with the view that gold is an inflation hedge in the long-run and it also allows the price of gold to fluctuate considerably in the short run. They stated three findings in their papers. The first finding is that there is a long-term relationship between the price of gold and the US price level, followed by second finding, which is the US price level and the price of gold moved together in a statistically significant long-run relationship supporting the view of that one percent increase in the general US price level leads to a one percent increase in the price of gold. Thirdly, they were stated that, in the wake of a shock that causes a deviation from this long-term relationship, there is a slow reversion back towards it. In this paper, they were concluded that there is a long term one-for-one relationship between the price of gold and general price level in the USA. In other words, one percent rise in US inflation raises the long-term price of gold by an estimated one percent. Despite of this, there are short-run deviations from the long-run relationship between the price of gold caused by short-run changes in the US inflationary rate, inflation volatility, credit risk, the US dollar trade-weighted exchange rate and the gold lease rate. In addition, third finding has been proven as there is a slow reversion towards the long-term relationship following a shock that cause a deviation from this long-term relationship. 14 In fact, all of the above empirical studies focused on the direct relationship between inflation and the price of gold. The empirical studies below focused on the indirect relationship between inflation and the price of gold, such as inflation and investments, inflation and performance of stock markets, and so forth. John H. Boyd, Ross Levine, and Bruce D. Smith (2000) studied about the impact of inflation on financial sector performance. In this paper, they empirically assessed the predictions of the rate of inflation interfere with the ability of the financial sector to allocate resources effectively. They had quoted from Huybens (1998) and Smith (1999); recent theories emphasize the importance of informational asymmetries in credit market and demonstrate how increases in the rate of inflation adversely affect credit market frictions with negative repercussions for finance sectors performance and therefore long-run real activity. Furthermore, they quoted from Boyd and Smith (1998); Huybens and Smith (1998, 1999) that the related models suggest the existence of a third inflation threshold. According to this threshold, in some cases, once the rate of inflation exceeds the critical level, perfect foreign dynamics do not allow an economy to converge to a steady state displaying either an active financial system or a high level of real activity. In other words, further increase in inflation after exceeding the critical level will have no additional consequences for financial sector performance or economic growth. Throughout this paper, they had shown the evidence that indicates that there is a significant and economically important, negative relationship between inflation and financial development. Furthermore, they also found that the empirical relationship between inflation and financial sector activity is highly non-linear. One of the examples provided by John et al (2000) is that in low-inflation countries, the data indicates that more inflation is not matched by greater nominal equity returns. John et al (2000) stress that this finding is consistent with the theories outlined in the Introduction of his paper. 15 Mohammed Omran and John Pointon (2001) conducted a research in determining whether inflation rate affect the performance of the stock markets. In this paper, they were examining the impact of inflation rate based on the performance of Egyptian stock market. They also paid attention to the effects of the rate of inflation on various stock market performance variables in terms of market activity and market liquidity. According to Mohammed and John (2001), the results revealed an expected behavior for the stock market response to the decrease in the inflation rate, and the results regarding overall performance seem consistent as there is an inverse relationship between the inflation rate and both stock returns and prices. Patrick Honohan and Philip R. Lane (2004) of The World Bank and Economic Department discussed about the exchange rate and inflation under Economic and Monetary Unition, EMU. The purpose of this paper is to provide updated information from their previous work, which was about the exchange rate and inflation under EMU. In this paper, they updated and extended the exchange rates matter for EMU inflation rates during periods of euro appreciation (20022003) as well as periods of euro depreciation (1991-2001). Next, they were also provided an analysis of quarterly data over 1999.1-2004.1. They confirmed the connection between exchange rates and inflation. When the exchange rate is excessively weak, inflation rises in order to correct under-valuation, or vice versa. M. Kannadhasan (2006) is concerned about the effects of inflation on capital budgeting decisions. In his research paper, ‘Effects of Inflation On Capital Budgeting Decisions—An Analytical Study’, he stated that in practice, managers do recognize that inflation exists but rarely incorporate inflation in the analysis of capital budgeting because they were assuming that with inflation, both net revenues and the project cost will rise proportionately. However, it was incorrect. In the purpose of presenting the correct path, he had divided his research paper into two parts: discussion about inflation, how to measure inflation and the effects of 16 inflation on GDP, and the second part, effects on inflation on capital budgeting decisions, concerning about how to deal with expected and unexpected inflation while forecasting cash flows and determining the discount rate in particular. According to M. Kannadhasan (2006), inflation is measured by observing the change in the price of a large number of goods and services in an economy, and it is usually based on data collected by government agencies. As similar to other explanation, he had explained that inflation rate is the rate of increasing in the price index. He had described price level as measuring the size of the balloon, while inflation refers to the increase in its size. In his findings, he had concluded that effects of inflation are significantly influenced on capital budgeting decision making process. He was also recommended that finance manager should take into organize the effects of inflation. Dorel Bercanu and Anca Bandoi (2009) have done their research in investigating how inflation influences about investment decision. They had stated that the activity of investment in a company is based on strategy of economic development set at the level it held and also based on the investment programs or projects. Meanwhile they defined the meaning of project investment as a complete and autonomous action involving the achievement of its investments and exploitation of its long life. They have stated that inflation represents the accelerated growth and the general level of prices, matched by increased money, low purchasing power of money and depreciation under the influence of economic, monetary, social, domestic and foreign policy. As discussed in Chapter One, we knew that international monetary system started with the backup of gold standard, and thus, the increasing of inflation rate can positively or negatively influence the price of gold. Dorel and Anca (2009), used simple criteria or criteria based on discounting the present value criteria (NPV). Through data analysis, they concluded that in taking decisions in investments, investors should take the influence of inflation into account and thus, right decision could be made. 17 2.2 Impacts of exchange rate According to Mika& Eero (2007), evidence indicated that the US Inflation, world inflation volatility, US-world exchange rate index, beta of gold and credit risk default premium were all statistically significant variables. In their research paper, they quoted Capie, F., Mills, T.C. and Wood, G (2004), had examined one aspect of the second role of gold, which is gold as hedge against US dollar. Capie et al (2004) was using data from 1971 to 2002, and then applied a variety of statistical techniques to explore the relationships between gold and the exchange rates of various currencies against the US dollar, with particular attention paid to the hedging properties of gold in episodes of economic or political turmoil. As a result, they were found that US dollar gold price move in opposition to US dollar and the movement was essentially contemporaneous. Kuan-Min& Yuan-Min (2010) published their research “Could Gold Serve as an Exchange Rate Hedge in Japan?” In this paper, they attempted to examine whether gold could be an exchange rate hedge in Japan using data from 1986 to 2007. According to Kuan-Min& Yuan-Min (2010), most researches have focused on a linear relationship between returns on gold and the exchange rate, but they were using the depreciation rate of the yen as a threshold variable to distinguish between a high depreciation regime and a low depreciation regime. As a result, they were found that when the yen depreciation rate is greater than 2.6%, investing in gold could avoid the depreciation loss. Bedjo Santoso (2010) studied about the effects of G-8’s GDP, US dollar exchange rate and gold exchange rate to the Indonesian export. G-8 is the largest importer for Indonesian products. G-8 countries are USA, Germany, French, Italy, UK, Italy, Russia, Canada and Japan. In this paper, he examined the implication of G8’s GDP, US dollar exchange rate change, and exchange price of Gold on the demand export of Indonesia. Throughout this study, it is clearly shows that US dollar exchange rate variable has a negatively relationship in the long term with 18 Indonesian export, and it also effects the export volume decrease in the short-run. Despite from it, gold exchange rate and G-8’s GDP have positively and significantly impacts in the long run. Meanwhile, the changing of the variables was adjusted around 6% by export variable in the short run. Furthermore, a positively relationship is found between the volume of exports with gold exchange rates, and it is significant in the short term. According to Bedjo (2010) there is an opportunity for using gold base currency as a better alternative. All of the empirical studies above had direct relationship between exchange rate and the price of gold. Inversely, the empirical studies below were having indirect relationship between exchange rate and the price of gold. For example, exchange rate strategies on trade and foreign direct investment. A. Lahrèche-Révil and A. Bénassy-Quéré (2001) conducted a study regarding of the impact of exchange rate strategies on trade and foreign direct investment in China. According to Lahrèche and Bénassy (2001), the research examined the impact of potential changes in the exchange-rate strategy of China on the amount and distribution trade and foreign direct investment in China. They also stated that exchange-rate regimes are defined through the joint behavior of the real exchange rate level and the nominal exchange rate volatility. In this paper, they managed to draw several conclusions. Firstly, they concluded that real exchange rate is likely to be increasing concern for both trade and foreign direct investment in China. Next, exchange-rate regimes play a role for attracting FDI in China although they were unable to successfully demonstrate an influence of exchange-rate uncertainty on trade. Christian Broda and John Romalis (2003) conducted a study for identifying the relationship between trade and exchange rate volatility. According to Christian and John (2003), a model of international trade in which international trade depresses real exchange rate volatility and exchange rate volatility impacts trade in products differently according to their degree of differentiation. In this study, they 19
- Xem thêm -