Does Gold Act as an Instrument to hedge Against Inflation Between the Years of 1980-2010 in Six Developed Countries?

Diah Ekowati, Mahfud Sholihin, M. Acc., Ph. D.

2013 | Tesis | S2 Magister Manajemen

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The aim of this research is to examine the role of gold as an instrument to hedge against inflation between 1980-2010 of four time frames, which are monthly, quarterly, semi-annually, and annually in six developed countries, which are Canada, Germany, Japan, Switzerland, UK, and US. This research replicates prior research done by Chua and Woodward (1982). The author uses multiple regression one tailed t-test with 95 percent confidence level where gold return act as dependent variable and both expected and unexpected inflation rate act as independent variable. Gold would be able as hedging property if it is uncorrelated or positively correlated with inflation rate which would be reflected by the slope coefficient. The result of this research shows that gold is hedge against unexpected inflation in four time frames of six developed countries since the slope coefficient of those time frames are uncorrelated with gold return. On the other hand, gold fails in playing its role as hedge against expected inflation in monthly data of US; quarterly and semi-annually data of Canada, Japan and US; and annually data of Japan since the slope coefficient are negatively correlated with gold return. Although the gold return is significantly negative correlated with expected inflation in certain countries, the coefficient of determination (R2) are so low hence diminish the ability for the expected inflation to explain the variation of gold return.

Kata Kunci : gold return, expected and unexpected inflation, developed countries