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Does gold act as an inflation hedge ? Malaysian case

Author

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  • Salleh, Eddee
  • Masih, Mansur

Abstract

Gold is arguably the most popular choice for investment. It has performed well during so many crisis situations such as market decline, currency failure, high inflation, war, and so on. Many studies have looked into the pattern of gold prices (see e.g. Capie, et. al, 2005; Worthington & Pahlavani, 2007; Baur & Lucey, 2010) to recognize the components that impact gold prices. Some of the factors that influence gold prices include inflation, exchange rate, national gold holding, savings and lending interest rate and consumer price index and a country’s total reserve. We want to investigate the performance of gold in relation to some of these variables and test whether gold can indeed be considered as a hedge against inflation. The standard time series techniques are used for the analysis and Malaysia is used as a case study. Our findings based on variance decompositions tend to indicate that gold can indeed be considered as a good hedge against inflation. The finding is plausible and intuitive and has a strong policy implication.

Suggested Citation

  • Salleh, Eddee & Masih, Mansur, 2017. "Does gold act as an inflation hedge ? Malaysian case," MPRA Paper 111749, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:111749
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    File URL: https://mpra.ub.uni-muenchen.de/111749/1/MPRA_paper_111749.pdf
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    References listed on IDEAS

    as
    1. Baur, Dirk G. & McDermott, Thomas K., 2010. "Is gold a safe haven? International evidence," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1886-1898, August.
    2. Toraman, Cengiz & Basarir, Cagatay & Bayramoglu, Mehmet Fatih, 2011. "Determination of Factors Affecting the Price of Gold: A Study of MGARCH Model," Business and Economics Research Journal, Uludag University, Faculty of Economics and Administrative Sciences, vol. 2(4), pages 1-37, October.
    3. Dirk G. Baur & Brian M. Lucey, 2010. "Is Gold a Hedge or a Safe Haven? An Analysis of Stocks, Bonds and Gold," The Financial Review, Eastern Finance Association, vol. 45(2), pages 217-229, May.
    4. M. Hashem Pesaran & Yongcheol Shin, 2002. "Long-Run Structural Modelling," Econometric Reviews, Taylor & Francis Journals, vol. 21(1), pages 49-87.
    5. Capie, Forrest & Mills, Terence C. & Wood, Geoffrey, 2005. "Gold as a hedge against the dollar," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 15(4), pages 343-352, October.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Gold; inflation hedge; VECM; VDC; Malaysia;
    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
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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