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Does gold act as an inflation hedge ? Malaysian case

Salleh, Eddee and Masih, Mansur (2017): Does gold act as an inflation hedge ? Malaysian case.

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Gold is arguably the most popular choice for investment. It has performed well during so many crisis situations such as market decline, currency failure, high inflation, war, and so on. Many studies have looked into the pattern of gold prices (see e.g. Capie, et. al, 2005; Worthington & Pahlavani, 2007; Baur & Lucey, 2010) to recognize the components that impact gold prices. Some of the factors that influence gold prices include inflation, exchange rate, national gold holding, savings and lending interest rate and consumer price index and a country’s total reserve. We want to investigate the performance of gold in relation to some of these variables and test whether gold can indeed be considered as a hedge against inflation. The standard time series techniques are used for the analysis and Malaysia is used as a case study. Our findings based on variance decompositions tend to indicate that gold can indeed be considered as a good hedge against inflation. The finding is plausible and intuitive and has a strong policy implication.

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