Abstract

Empirical research on the dynamics of the US dollar price of gold has largely focused on the macroeconomic influence of developed economies and gold’s role as a safe haven during times of market turmoil. However, the economies of several emerging markets now account for a substantial fraction of global gold holdings, and these holdings are not necessarily correlated with financial market uncertainty in developed markets. This paper compares two extensions to a popular econometric model of the US dollar gold price. We do so by incorporating the consumer holdings of gold from the largest emerging markets and comparing the effectiveness of our model over time to one that incorporates a measure of volatility in US financial markets (the VIX index). Our results indicate that emerging market consumer demand has a significant and growing impact on the relationship between USD exchange rates and the price of gold, and that this relationship has a stronger influence than does the level of uncertainty in US financial markets.

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