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This study analyzes the question whether gold provides the ability of hedging against infl ation from a new perspective. Using data for four major economies, namely the USA, the UK, the Euro Area, and Japan, we allow for nonlinearity and discriminate between long-run and time-varying short-run dynamics. Thus, we conduct a Markov-switching vector error correction model (MS-VECM) approach for a sample period ranging from January 1970 to December 2011. Our main fi ndings are threefold: First, we show that gold is partially able to hedge future infl ation in the long-run and this ability is stronger for the USA and the UK compared to Japan and the Euro Area. In addition, the adjustment of the general price level is characterized by regime-dependence, implying that the usefulness of gold as an infl ation hedge for investors crucially depends on the time horizon. Finally, one regime approximately accounts for times of turbulences while the other roughly corresponds to 'normal times'. JEL Classifi cation: C32, E31, E44

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This study adopts a copula wavelet approach to analyze dynamics of the gold price against bonds, stocks and exchange rates based on disaggregation of the underlying relationships across different frequencies. We also examine whether gold prices are directly affected by changes in uncertainty. Analyzing data for nine economies for a sample period starting in 1985, we find that the role of gold changes significantly after the collapse of Lehman Brothers in 2008. Gold is unable to serve as a hedge in the classical sense while the findings for the period prior to 2008 mostly suggest that gold is able to shield investors. Uncertainty measures display a surprising and time-varying relationship with the path of the gold price. While economic policy uncertainty is positively correlated with gold price developments, macroeconomic uncertainty and inflation uncertainty among forecasters are both negatively related to gold.