How the economics of gold and silver can help us understand the challenges facing financial economics was explored in an inaugural lecture by Professor Brian Lucey, Professor of International Finance and Commodities in Trinity Business School.
In the lecture, entitled Golden Opportunities: What precious metals can tell us about finance, Professor Lucey examined the research space in the financial economics of precious metals.
“Precious metals, and gold in particular, are much more widely traded and invested in than might be thought. Total precious metals trading in 2015 was probably of the order of $30 trillion, nearly two years GDP for the whole of Europe. Precious metals remain a very significant industrial and retail asset class, as well as financial. In 2016 probably 6,000 tons of precious metal was used in luxury goods, 2,400 tons of which was gold.”
Despite the size of the markets for various precious metals such as gold, silver, platinum and palladium, they remain under-researched and as a result can provide a good starting point for the testing of theoretical propositions.
“All the gold ever mined in history could be compressed into a 20m² cube and if you think of that in a stadium like Wimbledon you could fit it very comfortably. There has been about 180,000 tonnes of gold ever mined out, about $8 trillion worth and the US Geological Survey reckons that there is about 60,000 tonnes easily accessible to be mined out.
“The financial side, in other words the gold put aside for exchanges to back up gold products or to backup exchange traded funds or gold funds, is actually a pretty small amount of the entirety of the demand for gold. The vast majority of the demand for gold is from luxury goods and retail investment, which begs the question why is nobody looking in great detail at this.”
According to Professor Lucey, many of the traditional assumptions around financial economics may not hold when examining precious metal assets and as such many of these assets pose a challenge - being industrial, adornment, monetary, and financial assets all at once - as to how to deploy financial techniques to analyse.
Brian Lucey is Professor of International Finance and Commodities in Trinity Business School, where he has worked since 1992. In the past he has also worked as an economist in the Central Bank of Ireland and as an analyst in the Department of Health and Children.
Professor Lucey works mainly in the area of the financial economics of precious metals, in particular the drivers of their price and volatility changes.