Is gold a useful hedge against inflation across multiple time horizons?

Yingying Xu, Chi-Wei Su and Jaime Ortiz ()
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Yingying Xu: University of Science and Technology Beijing
Chi-Wei Su: Qingdao University
Jaime Ortiz: University of Houston

Empirical Economics, 2021, vol. 60, issue 3, No 4, 1175-1189

Abstract: Abstract We examine whether gold is an effective hedge against inflation over different time horizons. Using a stationary test with a flexible Fourier function, we consider all possible structural breaks with unknown forms and find that real gold returns over horizons ranging from 1 month to 15 years are nonlinear stationary processes. Although the real gold return may deviate from the inflation hedge rate because of holding opportunity cost and insufficient demand, over time it reverts to the long-run hedge rate. The results indicate that gold has generally maintained its purchasing power for the past 39 years. Therefore, gold can be a reliable hedge against inflation in both short and long time horizons. It is reasonable for investors to hold a certain amount of gold to hedge against the risk of inflation or to diversify assets, regardless of holding period.

Keywords: Gold; Inflation; Hedge; Stationary test; Structural break (search for similar items in EconPapers)
JEL-codes: E31 E44 G11 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (5)

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DOI: 10.1007/s00181-019-01807-0

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