Investment in Gold as a Hedge Against Inflation in Selected Countries

Authors

  • Katarzyna Mamcarz Maria Curie-Sklodowska University in Lublin, Faculty of Economics, Market Analyses Department

DOI:

https://doi.org/10.18778/0208-6018.339.12

Keywords:

investment in gold, inflation, inflation hedge

Abstract

Gold is a precious metal that plays an important role in asset management. The purpose of the article is to assess investments in gold as an asset that hedges investors against inflation in selected five countries (USA, Great Britain, Switzerland, Japan and Canada) and the Eurozone. Analyzed countries are leading investors on the gold market and its producers (US, Canada). To implement this objective, a graphic illustration was made showing the relationship between the nominal gold price and the price of gold hedging against inflation, as well as a regression model was constructed presenting the elasticity of gold returns relative to inflation (parameter β). Models for analyzed countries were verified with a use of R‑square, standard errors for residuals and Durbin‑Watson statistics (autocorrelation) and by applying DoornikHansen Test of Normality, White’s test for heteroskedasticity and test for nonlinearity. The studies were conducted based on the data published at the end of month regarding gold prices and the Consumer Price Index, which expresses changes in the inflation level between 1990 and 2016. The studies have shown that, apart from very few cases, inflation had a small impact on the evolution of gold prices expressed in national currencies. Except for Japan, the price of gold which hedged against inflation showed a rising trend despite diverse fluctuations of nominal gold prices. Investors had a chance to achieve rates of return exceeding the inflation rate by purchasing gold when its nominal price went below fair value. Gold turned out to be an excellent hedge against inflation for investors from Canada, both during the whole analyzed period, as well as during the bull and bear market. This is also true in the case of US during the bear market. The beta parameter for those countries assumed positive values, exceeding unity. A partial hedge against inflation was achieved by investors from US (the whole analyzed period, bull market) and from Great Britain (bull market). However, in most cases beta parameter showed negative values which means that the price of gold did not keep up with inflation and investment in gold did not provide a hedge against inflation. Results were not always statistically significant at given levels of significance.

Downloads

Download data is not yet available.

References

Bampinas G., Panagiotidis T. (2015), Are gold and silver a hedge against inflation? A two century perspective, „International Review of Financial Analysis”, t. 41, s. 267–276, https://doi.org/10.1016/j.irfa.2015.02.007.
Google Scholar

Bandulet B. (2010), Das geheime Wissen der Goldanleger, 3. Auflage, Kopp Verlag, Rottenburg.
Google Scholar

Capie F., Mills T. C., Wood G. (2005), Gold as a hedge against the dollar, „Journal of International Financial Markets, Institutions and Money” t. 15, nr 4, s. 343–352.
Google Scholar

Demidova‑Menzel N., Heidorn T. (2007), Gold in the Investment Portfolio, Frankfurt School – Working Paper Series 87, Frankfurt School of Finance & Management, Frankfurt am Main.
Google Scholar

Ghazali M. F., Lean H. H., Bahari Z. (2015), Is gold a good hedge against inflation? Empirical evidence in Malaysia, „Kajian Malaysia”, t. 33, supp. 1, s. 69–84.
Google Scholar

Ghosh D., Levin E. J., Macmillan P., Wright R. E. (2004), Gold as an inflation hedge?, „Studies in Economics and Finance”, t. 22, nr 1, s. 1–25, http://dx.doi.org/10.1108/eb043380.
Google Scholar

Hammoudeh R., Sari B., Ewing B. (2009), Relationships among strategic commodities and with financial variables: a new look, „Contemporary Economic Policy”, t. 27, nr 2, s. 251–264.
Google Scholar

https://www.quandl.com/data/RATEINF/CPI_CAN‑Consumer‑Price‑Index‑Canada (dostęp: 3.05.2017).
Google Scholar

https://www.quandl.com/data/RATEINF/CPI_CHE‑Consumer‑Price‑Index‑Switzerland (dostęp: 3.05.2017).
Google Scholar

https://www.quandl.com/data/RATEINF/CPI_EUR‑Consumer‑Price‑Index‑Euro‑Area (dostęp: 3.05.2017).
Google Scholar

https://www.quandl.com/data/RATEINF/CPI_GBR‑Consumer‑Price‑Index‑UK (dostęp: 3.05.2017).
Google Scholar

https://www.quandl.com/data/RATEINF/CPI_JPN‑Consumer‑Price‑Index‑Japan (dostęp: 3.05.2017).
Google Scholar

https://www.quandl.com/data/RATEINF/CPI_USA‑Consumer‑Price‑Index‑USA (dostęp: 3.05.2017).
Google Scholar

Levin E. J., Wright R. E. (2006), Short‑run and long‑run determinants of the price of gold. Project Report, World Gold Council Research Study, nr 32, https://www.gold.org/goldhub/research/short‑run‑and‑long‑run‑determinants‑price‑gold (dostęp: 13.12.2018).
Google Scholar

Mahdavi S., Zhou S. (1997), Gold and commodity prices as leading indicators of inflation: Tests of long‑run relationship and predictive performance, „Journal of Economics and Business”, t. 49, nr 5, s. 475–489.
Google Scholar

Michaud R., Michaud R., Pulvermacher K. (2006), Gold as a Strategic Asset, WGC, https://www.gold.org/goldhub/research/gold‑strategic‑asset (dostęp: 13.12.2018).
Google Scholar

Pukthuanthonga K., Roll R. (2011), Gold and the Dollar (and the Euro, Pound, and Yen), „Journal of Banking & Finance”, t. 35, nr 8, s. 2070–2083, https://doi.org/10.1016/j.jbankfin.2011.01.014.
Google Scholar

Ranson D., Wainright H. C. (2005), Why gold, not oil, is the superior predictor of inflation, http://www.gold.org/research/why‑gold‑not‑oil‑superior‑predictor‑inflation (dostęp: 4.05.2017).
Google Scholar

Sindhu R. (2013), A study on impact of selected factors on the price of gold, „Journal of Business and Management”, t. 8, nr 4, s. 84–93.
Google Scholar

Wang K.‑M., Lee Y.‑M., Nguyen Thi T.‑B. (2011), Time and place where gold acts as an inflation hedge: An application of long‑run and short‑run threshold model, „Economic Modelling”, t. 28, nr 3, s. 806–819.
Google Scholar

World Gold Council (WGC), www.gold.org (dostęp: 4.05.2017).
Google Scholar

Worthington A. C., Pahlavani M., (2007), Gold investment as an inflationary hedge: cointegration evidence with allowance for endogenous structural breaks, „Applied Financial Economics Letters”, t. 3, nr 4, s. 259–262.
Google Scholar

Published

2019-02-13

How to Cite

Mamcarz, K. (2019). Investment in Gold as a Hedge Against Inflation in Selected Countries. Acta Universitatis Lodziensis. Folia Oeconomica, 6(339), 203–218. https://doi.org/10.18778/0208-6018.339.12

Issue

Section

Articles

Similar Articles

1 2 3 4 5 6 7 > >> 

You may also start an advanced similarity search for this article.