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Is gold a useful hedge against inflation across multiple time horizons?
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Journal Article
Is gold a useful hedge against inflation across multiple time horizons?
2021
Overview
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.
