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Can Gold Investments Provide a Good Hedge Against Inflation? An Empirical Analysis

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  • Hanan Naser

    (Department of Business Studies, Arab Open University, Bahrain)

Abstract

It is widely accepted that inflation erodes purchasing power of retirement savings, redistributes wealth from lenders to borrowers, and threatens private investors' long-term objectives. Thus, there is a high demand on diversifying investors portfolio for both individuals and institutions in order to hedge against inflation. This paper aims to examine the effectiveness of gold investments to hedge against consumer inflation risks in the United States (US). Using monthly data from April, 1986 to June, 2016, that covers more than 30 years, unit root testing approach robust for finite samples, the Johansen multivariate cointegration test procedure and vector error correction model have been employed to examine the long-run relationship between gold return and consumer inflation in the US. The key finding suggests that gold investments in the US provide an effective hedge against inflation for investors who are willing to keep their investments for long-run. However, it does not provide any hedge if investors hold it for only short-term.

Suggested Citation

  • Hanan Naser, 2017. "Can Gold Investments Provide a Good Hedge Against Inflation? An Empirical Analysis," International Journal of Economics and Financial Issues, Econjournals, vol. 7(1), pages 470-475.
    • Handle: RePEc:eco:journ1:2017-01-60
    as

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    References listed on IDEAS

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    Cited by:

    1. Zbyněk Revenda & Markéta Arltová, 2022. "Akcie, zlato a inflace - vztahy a souvislosti v posledních 25 letech [Stocks, Gold and Inflation - Relationships and Contexts Over the Last 25 Years]," Politická ekonomie, Prague University of Economics and Business, vol. 2022(3), pages 288-311.
    2. Memet Agustiar & Fariastuti Djafar & Afrizal, 2017. "Construction of an Optimum Currency Area Index Anchored to the Gold Dinar: The Case of Selected Islamic Countries," International Journal of Economics and Financial Issues, Econjournals, vol. 7(3), pages 51-56.
    3. Hanan Naser, 2019. "Oil Price Fluctuation, Gold Returns and Inflationary Pressure: An Empirical Analysis Using Cointegration Approach," Applied Economics and Finance, Redfame publishing, vol. 6(2), pages 71-78, March.
    4. José Alves & João Quental Gonçalves, 2022. "How Money relates to value? An empirical examination on Gold, Silver and Bitcoin," Working Papers REM 2022/0222, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.

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    More about this item

    Keywords

    Hedge; Investments; Gold Prices; Inflation; Cointegration;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market

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