November 2, 2012 Leave a comment
Research: Gold as an inflation hedge in a time-varying framework
Although physical gold ownership is widely regarded as a ‘safe haven’ and inflation hedge today, empirical research on the hedging properties of gold led to ambiguous results and provided evidence for instabilities in the relationship between gold prices and inflation; while long-run analysis supports the hypothesis of gold being an inflation hedge, there is not necessarily a linear relationship in the short run.
The authors use a monthly dataset including the price for gold denominated in U.S. Dollar, British Pound Sterling, Euro and Japanese Yen as well as the consumer price index and the producer price index of the USA, the UK, the Euro Area, and Japan. The gold price data has been provided by the World Gold Council and covers a sample period from December 1969 to December 2011.
The study finds that
- Gold is partially able to hedge future inflation in the long-run.
- This ability tends to be stronger for consumer prices in general as well as for the USA and the UK compared to Japan and the Euro Area.
- The adjustment of the general price level seems to depend on whether or not the economy is in “normal times” or times of turmoil.
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