DETERMINING FACTORS FOR GOLD AS INFLATION HEDGE: AN EMPIRICAL STUDY BASED ON US DATA
Dr. Muhammad Ather Ashraf1, Dr. Mohammad Ayaz2, Dr. Hassan Shakeel Shah3
University of Management and Technology, Lahore, Pakistan1,2,3
ather.ashraf@umt.edu.pk, mohammad.ayaz@umt.edu.pk2, hassan.shakeel@umt.edu.pk3
Abstract
In investing community gold is considered to be inflation or economic risk hedge. It has been seen that when there is high inflation gold performs better than the capital markets. Similarly, if there is risk in economic activity due to some local or global issues gold has better performance. In this study we have tried to answer the question that arose during last few months that when Consumer Price Index (CPI) was increasing in all developed economies gold was not responding to as expected. Therefore, we tried to find the relevant variables to which gold was responding. The data used for this study has been taken from the United States of America (USA) markets. In this study we have taken data of Gold returns against CPI and other expected inflation indicators, which was tested for stationarity, multicollinearity, heteroscedasticity and other data parameters. Time series Auto Regressive Distributed Lag (ARDL) model was used to check the relationship of Gold performance with CPI and other expected inflation variables. It was found, based on the monthly data (2011 to end of 2021), that the variable of expected inflation was statistically significant for the Gold performance but not CPI. This study could be beneficial for the investment community.
Key words: GLD, CPI, 10 Year US Bond Yield, Treasury Inflation Protected Securities (TIPS)