Is gold an inflation-hedge? Evidence from an interrupted Markov-switching cointegration model

Aye, Goodness C.; Chang, Tsangyao; Gupta, Rangan

doi:10.1016/j.resourpol.2016.02.011

Cited by 60 publications

(30 citation statements)

References 37 publications

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“…On other hand, beauty of gold is to love the bad news, and in response to adverse stock market movement its rising prices compensate the portfolio losses (Arouri et al 2015, Beckmann et al 2015, Śmiech and Papież 2016, Chkili 2016, Basher and Sadorsky 2016, Raza et al 2016. Also, compensate investors for many deterioration in purchasing power due to inflation or currency depreciation (Wang and Lee 2016, Aye et al 2016, Iqbal et al 2016.…”

Section: Related Literaturementioning

confidence: 99%

Dependence of stock markets with gold and bonds under bullish and bearish market states

et al. 2017

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This paper examines the dependence of gold and benchmark bonds with ten stock markets including five larger developed markets (e.g. USA, UK, Japan, Canada and Germany) and five Eurozone peripheral GIPSI countries (Greece, Ireland, Portuguese, Spain and Ireland) stock markets. We use a novel quantile-on-quantile (QQ) approach to construct the dependence estimates of the quantiles of gold and bond with the quantiles of stock markets. The QQ approach, recently developed by Sim and Zhou (2015), captures the dependence between the entire distributions of financial assets and uncovers some nuance features of the relationship. The empirical findings primarily show that gold is strong hedge and diversifier for the stock portfolio except when both the markets are under stress. Further, the flight to safety phenomenon is shortlived because national benchmark bonds exhibit a positive dependence with their respective countries stock indices at various quantiles. Unlike the existing literature, the QQ approach suggest that bonds act as safe havens for the stock portfolio but gold does not. Our findings also suggest that dependence between stock-gold and stock-bond pairs is not uniform and this relationship is market state (e.g. bearish, mild bearish, optimistic or bullish) and country specific.

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Section: Related Literaturementioning

confidence: 99%

Dependence of stock markets with gold and bonds under bullish and bearish market states

et al. 2017

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“…Financial crises provide a strong motivation for investors to seek out safe‐haven assets. Conventional wisdom holds that the price of gold varies with the general price index, and consequently, gold continues to hedge against the risk of inflation, even after the collapse of the Bretton Woods system in 1973 (Aye, Chang, & Gupta, ; Long, Li, & Li, ). Fisher () stated the fundamental relationship between gold and inflation as follows: the expected nominal asset return is a combination of expected return and expected inflation rate.…”

Section: Introductionmentioning

confidence: 99%

Gold and inflation: Expected inflation effect or carrying cost effect?

Liu

et al. 2019

International Finance

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This study examines whether the expected inflation effect hypothesis adequately explains the causal relationship between inflation expectations and gold returns. A bootstrap full‐sample Granger causality test shows that gold returns cause inflation expectations rather than the reverse. To account for possible structural changes, we apply bootstrap subsample Granger causality tests with 60‐month windows. The results suggest that both professional forecasters' and consumers' inflation expectations have negative effects on gold returns in some but not all sample periods, contradicting the expected inflation effect hypothesis. No causality is found in other periods, consistent with the carrying cost hypothesis that the expected gain from gold due to higher inflation is offset by its carrying cost. Holding gold will not necessarily hedge against inflation because gold returns do not necessarily correlate with inflation expectation. Therefore, the carrying cost hypothesis more accurately explains the relationship between gold returns and inflation expectation than the expected inflation effect hypothesis does.

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“…Examining the topic "Is gold an inflation-hedge? ", Aye et al (2016) applied data from 1833 to 2013 to trace whether gold can act as a hedge against inflation. In this investigation, the authors examined the hedging role of gold against price-level, while checking for other financial assets under a flexible structure.…”

Section: Previous Researchmentioning

confidence: 99%

Factors Affecting the Disparity of Vietnamese Gold Prices and Worldwide Gold Prices

Tri¹,

Nga²

2019

JOC

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Gold is a precious metal which is highly appreciated because of its prominent role in the world of investments, savings, and consumption. Although gold is no longer used as a primary form of currency in some countries, it continues to have a strong influence on the value of the currencies of those countries. Compared to all the other precious metals used for investment and trade, throughout history gold has always been preferred. The value of gold is a factor mentioned in the commodities and futures market. Vietnam does not produce/mine enough gold to meet its domestic requirements. As the country has to import over sixty percent of its gold, Vietnam's gold price is mostly influenced by the world price movements, in turn increasing or decreasing domestically. Therefore, understanding and addressing the factors resulting in gold price disparities is essential in policy adjustments to stabilize the price of gold and prevent speculation, which may cause economic destabilization as well as a loss of competitiveness in Vietnamese market for gold and other precious metals. The study includes monthly data collected between January 2006 and December 2015. Exchange rates, import tax, and seasonal factor data are included in the model as independent variables. According to the empirical findings, the foreign exchange rate had a negative impact on the disparity between Vietnamese gold price and the world price. The import tax has a positive effect on the discrepancies among gold prices, while the seasonal factor variable was not statistically significant at 5 percent and negative concerning the disparity of the gold price.

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Is gold an inflation-hedge? Evidence from an interrupted Markov-switching cointegration model

Cited by 60 publications

References 37 publications

Dependence of stock markets with gold and bonds under bullish and bearish market states

Dependence of stock markets with gold and bonds under bullish and bearish market states

Gold and inflation: Expected inflation effect or carrying cost effect?

Factors Affecting the Disparity of Vietnamese Gold Prices and Worldwide Gold Prices

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