Frontiers in Business, Economics and Management ISSN: 2766-824X | Vol. 9, No. 1, 2023 148 An Empirical Study on the Factors Influencing China's Gold Price Benxu Li College of Business Administration, University of Science and Technology Liaoning, Anshan, Liaoning, 114051, China Abstract: Since the collapse of the Bretton Woods system in 1973, the international gold price has no longer been directly linked to the US dollar, and the main factors affecting international gold have increased and become more volatile. Based on this background, gold, as a major commodity, possesses both asset and financial functional attributes. With the continuous opening of China's financial market and the introduction of a series of financial policies, the fluctuation factors affecting gold prices have become one of the topics that have been attracting attention from various parties in the industry. This paper uses Eviews software to analyze a series of variables that directly affect the gold price, and discusses how to confirm which variables are the main factors that ultimately predict the gold market price. Keywords: China's gold price, US dollar index, Eviews, Empirical analysis. 1. Introduction Under the international political and economic background of the subprime mortgage crisis sweeping the world, the European debt crisis worsening, the fierce geopolitical competition, the threat of the US dollar's hard currency status, and the increasingly serious inflation, the unique risk aversion and value maintenance and appreciation functions of gold have returned to the public memory, and gold trading has shown an unprecedented dynamic trend.Gold prices have soared, and gold has become one of the important tools for investors. According to the research results of domestic and foreign experts and scholars, the endogenous factors that affect international gold prices can be basically summarized as gold supply, international crude oil prices, the strength of the US dollar, stock market prosperity, inflation conditions, international political turmoil and wars, etc.So are these factors all having an impact on China's gold price, and what are the dominant factors that play a leading role in China's gold price among these factors?This paper takes the gold price in China's gold trading market as the research object, and uses linear regression model analysis to reveal the dominant factors affecting the price fluctuation in China's gold market, so as to provide reference for individual and institutional investors to make decisions. 2. Related Theories and Literature 2.1. Correlation theory There are not many pricing theoretical models for gold, and there is no mature and widely recognized gold pricing theoretical model.Therefore, this article mainly focuses on literature analysis. 2.2. Literature 2.2.1. Domestic research status Liu Hui mainly elaborated on the impact of inflation on China's gold price, as inflation and risk aversion continue to affect the price of gold. Xingyuan, Zhou Tong, and Bai Yunyu analyzed the factors influencing the long-term trend of gold prices.Cao Liying conducted research on the influencing factors of gold prices and predicted their future trends; Fang Kang used principal component analysis to reduce dimensionality and established a regression model to estimate the impact of relevant indicators on gold prices. After a detailed reading of the literature, we found that the authors believed that inflation, supply and demand of gold, changes in the dollar index, stock price index, crude oil price, federal fund interest rate and official gold reserve had an impact on gold prices. 2.2.2. Abroad Research Status Brian analyzed the changes in determining factors of gold prices during economic crises caused by market crashes using an asymmetric Power-L ARCH model.Levin and Wright analyzed the short-term and long-term determinants of gold prices.In the short term, gold prices are positively correlated with inflation volatility and credit risk, while negatively correlated with the rental interest rate of gold and the nominal effective exchange rate of the US dollar.In the long run, the price of gold is positively correlated with the level of commodity prices. We can see from the research of foreign scholars mentioned above .The research objects of foreign scholars mainly focus on the economic indicators of the United States and the relationship between the international price of gold and financial assets measured in US dollars, including the inflation rate and US dollar exchange rate in the United States. Numerous studies have shown that changes in the US dollar exchange rate have the most significant impact on changes in gold prices. 3. Selection of Variables Based on literature review and survey data, our group selected the main influencing factors for China's gold price in this analysis, including the US dollar, China's economic development, inflation, international crude oil prices, interest rate levels, and the relationship between gold supply and demand. 3.1. The impact of the US dollar on gold prices Like other commodity prices, gold is denominated in the dollar, which, under other conditions, increases when the 149 dollar falls and falls when the dollar rises. The DOLLAR index (USD) and gold price (GP) basically move in the opposite direction, with a negative correlation and the negative correlation is statistically significant. Therefore, the trend of the gold price can be judged according to the trend of the US dollar index. And the trend of the dollar index is often associated with the U. S. economy, when the U. S. economy positive, the dollar index will strengthen, such as when the American non-farm payrolls increase, tend to indicate the U. S. economy situation, which leads to raise interest rates, causing investors rushed to buy assets in order to value. 3.2. The impact of inflation on gold prices Inflation reflects the stability of a country's currency and reflects the purchasing power of its currency. When the inflation level is low, the value of the currency is stable; When the inflation level is high, the purchasing power of the domestic currency is weakened, consumers will lose confidence in the domestic currency. As gold has the intrinsic value and the value of gold, which makes the gold price rise, the holding of gold mainly reflects the function of avoiding the risk of inflation. However, not all countries will increase their holdings of gold when inflation is high, mainly in the United States and countries with high demand for gold and strong investment awareness. Since gold is denominated in US dollars, if U. S. inflation rises, it will strengthen investor expectations of a higher US dollar rate hike, thus strengthening the DOLLAR index and sending gold prices lower. 3.3. The impact of international crude oil prices on gold prices Since the international crude oil price is also denominated in US dollar, the trend of the international crude oil price and gold price is similar to some extent, when the US dollar price rises, the international crude oil price and gold price fall; when the US dollar falls, the international crude oil price and gold price rise., On the other hand, when the global oil demand growth faster than the supply growth, the trend of international oil prices will rise, the rise in crude oil prices will lead to higher production costs and further push up domestic inflation, and because the inflation level and gold prices have certain positive correlation, so the international rise of crude oil prices will rise in the price of gold. 3.4. The impact of economic conditions on gold prices When countries maintain stable economic growth, consumer income will gradually increase, consumption level will increase with the increase of income, from a certain extent will lead to the increase of investment demand, so consumers will increase gold jewelry purchase, but also will increase the investment demand for gold, in other conditions under the condition of the same, the increase in the demand for gold will promote gold prices. When an economy recessions, consumers lose less purchasing power, leading to less demand for gold, so gold prices fall. The impact is more reflected in countries where gold demand is high and in countries with high income levels. When the economic recession occurs in the United States, the situation is different. If the U. S. economy declines, the DOLLAR index will also decline. With the decline of the DOLLAR index, the gold price will rise. 3.5. The impact of interest rates on gold prices Capital has the nature of profit, the holdings of gold will not get any interest, its investment income only from the gold price rose, when interest rates are low, holdings of gold will get certain benefits, especially when the fed cut interest rates will lead to the dollar index lower, because the dollar index and gold price has negative relationship, so the dollar index will make the gold prices rise. Lower interest rates will also make higher inflation possible in the future, as gold is an inflation-risk hedge, leading to increased demand for gold and further driving up gold prices. When the interest rate is increased or the interest rate is higher than the inflation rate, the interest income will increase, and the opportunity cost of holding interest-free gold is larger, especially when the Fed increases the interest rate, the dollar index will rise, and the rise of the dollar index will lead to the decline of the gold price. 4. Empirical Analysis of The Influencing Factors The variables analyzed above were selected to correspond to the relevant data Table 1. Corresponding data influencing factor Corresponding data American dollar US Dollar Index (USD) China's economic development situation GDP inflation CPI index number International crude oil prices International crude oil prices interest rate Deposit interest rate of the People's Bank of China Gold supply and demand Per capita disposable income of residents The data used in the project is annual data, and the sample period is 2002-2019. (T> 15) The sample data is obtained from the official website of the National Bureau of Statistics. Eviews7.2 is used to analyze the influencing factors of China's gold price. OLS model based on the data, set as follows: Y = β0 + β1 X1 + β2 X2 + β3 X3 + β4 X4 + β5 X5_r + β6 X6 + Ut In this experiment, the purpose is to make the analysis results more practical, and we have reduced the nominal value of GDP (X5). 150 Table 2. Nominal (X5) GDP Among them, Y represents China's gold price, X1 represents the US dollar index (USD), X2 inflation rate (CPI), X3 represents the international crude oil price, X4 represents the interest rate level, X5_r represents the real GDP and X6 represents the per capita disposable income of Chinese residents, and Ut is a random winding term. 4.1. Descriptive analysis Descriptive analysis of the selected variables (take Y and X1 as examples) Y represents the gold price in China from 2002 to 2019. The mean value of Y is 209.5939 yuan; the standard deviation is 95.35163 yuan; the skestate of Y is-0.419656; the kurtosis is 1.825490; the JB statistic is 1.565939; and the corresponding P-value is 0.457733. Because P> 0.05, Y accepts the assumption of a normal distribution. Figure 1. Descriptive analysis of Figure Y The X1 represents the 2002-2019 US dollar index. The mean value of X1 is 94.09211; the standard deviation is 7.484667; X1 is 0.115524; the kurtosis is 1.932952; the JB statistic is 0.893981; and the corresponding P-value is 0.639550. Because P> 0.05, X1 accepts the assumption of a normal distribution. 151 Figure 2. Descriptive analysis of the X 1 4.2. Regression results 4.2.1. First return Y = -5.48185361394*X1 + 118.746323745*X2 + 0.260840952213*X3 - 7.54149293205*X4 + 0.00121671913634*X5_R - 0.00901706856102*X6 + 507.75385908 R^2=0.919031 DW=1.205815 As can be seen from the regression results, the goodness of fit of the equation is 0.920002, indicating that the fit is good. However, the P values of X1, X2, X3, X4, X5_r, X6 and C are greater than 0.05, so none of them are significant and there is likely to be multicollinearity. The methods to eliminate multicollinearity include principal component analysis, ridge regression step regression method and difference method. In this paper, stepwise regression method is adopted to eliminate the variables with poor fitting effect. Figure 3. Results of the first regression 152 4.2.2. The second return The new regression equation is provided with: Y = -6.2050324039*X1 + 0.000640813943872*X5_R + 603.919258617 R^2=0.915465 DW=1.436426 As can be seen from the regression results, the goodness of fit of the equation is 0.915465, indicating that the fit is good. The t-test P-values for the coefficients of all explanatory variables were less than 0.05 and all significant. Moreover, the values of AIC, SC and HQC were lower compared to the previous model, so this model was finally selected. Figure 4. Results of the second regression 4.3. Coefficient interpretation and equation significance Y = -6.2050324039*X1 + 0.000640813943872*X5_R + 603.919258617 (1) The meaning of β 1: with other conditions unchanged, on average, the DOLLAR index increased by 1%, and China's gold price decreased by 6.21%. (2) The meaning of β 5: other conditions unchanged, in the average sense, China's GDP every change of 1%, China's gold price increased by 0.000641%. Null hypothesis: H0: β 1= β 2=0, alternative hypothesis: H1: H0 is not true, The F value is 81.22093, check the F0.05 value table, Fc=F0.05 (2,15) =3.68, F> Fc, so the null hypothesis is rejected and the whole equation is significant. Final choice of regression equation form: Y=C+β1X1+β5X5_r+u Final regression equation: Y = -6.2050324039*X1 + 0.000640813943872*X5_R + 603.919258617 4.4. Correction and inspection and problem handling 4.4.1. Missetting test Null hypothesis: There is no missetting Optional hypothesis: There is a missetting According to the results we see that F=1.213199 In the F table, the cut-off value F 0.05 (2,15) =3.68, and the null hypothesis is accepted because 1.213199 <3.68, that is, F