Picture of two heads

Open Access research that challenges the mind...

The Strathprints institutional repository is a digital archive of University of Strathclyde research outputs. Strathprints provides access to thousands of Open Access research papers by University of Strathclyde researchers, including those from the School of Psychological Sciences & Health - but also papers by researchers based within the Faculties of Science, Engineering, Humanities & Social Sciences, and from the Strathclyde Business School.

Discover more...

Gold as an inflation hedge?

Ghosh, Dipak and Levin, Eric J. and MacMillan, Peter and Wright, Robert E. (2004) Gold as an inflation hedge? Studies in Economics and Finance, 22 (1). pp. 1-25. ISSN 1086-7376

[img]
Preview
PDF (strathprints006926.pdf)
strathprints006926.pdf

Download (293kB) | Preview

Abstract

This paper attempts to reconcile an apparent contradiction between short-run and long-run movements in the price of gold. The theoretical model suggests a set of conditions under which the price of gold rises over time at the general rate of inflation and hence be an effective hedge against inflation. The model also demonstrates that short-run changes in the gold lease rate, the real interest rate, convenience yield, default risk, the covariance of gold returns with other assets and the dollar/world exchange rate can disturb this equilibrium relationship and generate short-run price volatility. Using monthly gold price data (1976-1999), and cointegration regression techniques, an empirical analysis confirms the central hypotheses of the theoretical model.