DIPAK GHOSH (University of Stirling)
ERIC J. LEVIN (University of Stirling)
PETER MACMILLAN (University of St. Andrews)
ROBERT E. WRIGHT (University of Stirling, CEPR and IZA)

Studies in Economics and Finance

ISSN: 1086-7376

Publication date: 1 January 2004


This paper attempts to reconcile an apparent contradiction between short‐run and long‐run movements in the price of gold. The theoretical model suggests a set of conditions under which the price of gold rises over time at the general rate of inflation and hence be an effective hedge against inflation. The model also demonstrates that short‐run changes in the gold lease rate, the real interest rate, convenience yield, default risk, the covariance of gold returns with other assets and the dollar/world exchange rate can disturb this equilibrium relationship and generate short‐run price volatility. Using monthly gold price data (1976–1999), and cointegration regression techniques, an empirical analysis confirms the central hypotheses of the theoretical model.


GHOSH, D., LEVIN, E., MACMILLAN, P. and WRIGHT, R. (2004), "GOLD AS AN INFLATION HEDGE?", Studies in Economics and Finance, Vol. 22 No. 1, pp. 1-25.

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Copyright © 2004, Emerald Group Publishing Limited

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