CHAPTER ONE INTRODUCTION         Background to the study

Ghana has been endowed with significant mineral deposits of which gold “is by far” being the most important mineral mined (Bermudez- Lugo, 2006). Ghana is still ranked as the “world’s 10th and Africa’s 2nd largest producer of gold, with current production estimated in excess of 2.81Moz” as at June 2018; rising from 2.54Moz in 2017 (Joseph &Wang, 2018).

Gold as a metal or mineral has both commodity and monetary attributes which makes it a very important natural mineral in the financial markets. Gold as a recognized international trade commodity is considered as a significant item in central bank reserves in the world economy and investment in it is seen as a very formidable venture for governments and private entities because of its good store of value (Nadeem et al 2014; Tran & Starr, 2007). Despite the value of this precious mineral commodity, “its price remains closely watched as an indicator of changing risk perceptions”.

According to Nadeem et al. (2014), the price of gold is a very “good indicator to evaluate” the economic health of both developed and developing economies. When gold prices are high, investors assemble them to prevent them from being subjected to inflation hence indicating an unhealthy economy; whilst in the opposite, investors will switch “to other profitable investments like bonds, real estate”, among others indicating a healthy economy due to the low gold prices (Nadeem et al., 2004). As established by some literature, gold prices are for diversifying portfolios, hedging and risk mitigation. Le and Chan (2011) indicated that investing in gold reduces financial market risk. In view of this, many investors are likely to invest in the commodity for the benefitof their companies among many other reasons. One inevitable point opined by Mamcarz (2015) is that the decision to invest in gold rests not on only knowing its price, but also the factors that influences gold price fluctuations. Sharing in the viewpoint of the above researches, it is therefore very “important to understand the” fluctuations in gold prices and the macroeconomic variables that play a role in it (either positively or negatively); since “gold price is a strong indicator of the” well-being of the economy.

        Research Problem

The fluctuations in gold prices are very critical to investor knowledge, as these will influence the level of investment into this beneficial commodity for a country. The identification “of the relationship between macroeconomic” factors and gold prices makes it possible to explain changes in gold prices in the past and to make forecasts. This is of great importance for “both speculators and investors” committing capital in the long term. Several research works across the globe have brought to the pool of knowledge on the factors that affect gold prices. Research works by Wang et al. (2011), Le and Chang (2011), Levin and Wright (2006), Nadeem et al. (2014), Tully and Lucey (2007) in countries like Pakistan, USA, and the Asia, have touched on different “macroeconomic variables such inflation, oil prices, interest rates, exchange rate and” others to have relationships with gold prices; however, report from Ghana is lacking.

Ghana is a notable country rich in the precious mineral gold in Africa. The gold as a commodity and its “prices play a significant role in the” determination “of the gold prices” in the country together with other commodities such as oil, cocoa and timber. Though gold as a commodity is significant in Ghana’s developing economy, literature and previous research works on the commodity have not focused on how its prices fluctuate and what relationship it has with other

“macroeconomic variables such as interest rates, exchange rates, inflation, oil prices and” other “macroeconomic variables. Most of the research” works including that of Tweneboah and Adam (2008), Adu (2012) among others have focused on the effect of gold prices as a macroeconomic variable on stock prices. This has led to a dearth of information on how macroeconomic variables impact or affect gold prices in the country. Therefore, “this study seeks” to address the identified gap in research studies with reference to the commodity by looking at the impact of selected “macroeconomic variables on the gold prices in” Ghana.

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