Determinants of Gold Reserves: An Empirical Analysis for G-7 Countries

In this article, we explore the determinants of gold reserves by central banks of Group of Seven (G-7) countries. They are also the suppliers of key currencies. We analyse a sample spanning 24 years period from 1990 to 2014, using panel regression model. Firstly, we compare the patterns of gold reserves in the central banks of G7 with the determinants of their central banks’ total reserves, and also with non-gold international reserves. We find that the factors that affect gold reserves are utterly different from other two models. Secondly, we show that an increase in G-7 countries’ GDP, and also in their exports of goods and services, have positive and significant effects on gold reserves, while Population, Net FDI Liabilities, and Current Account Balance have negative effects on it. Finally, we predict that high economic growth and rising exports and services of G-7 are more likely to lead to an increase in their gold reserves which are effecting 64% of net global wealth.