On the Economic Determinants of the Gold-Inflation Relation
Jonathan A. Batten
Monash University - Department of Accounting and Finance
University of North Carolina at Wilmington
Brian M. Lucey
Trinity Business School, Trinity College Dublin; Trinity College (Dublin) - Institute for International Integration Studies (IIIS); University of Ljubljana - Faculty of Economics
March 19, 2014
We examine the long term dynamic relation between inflation and the price of gold. We begin by showing that there is no cointegration between gold and the consumer price index (CPI) if the volatile period of the early 1980s is excluded from the data. However, we are also able to demonstrate that there is significant time variation in the relation, such that comovement between the variables has indeed increased in the last decade. Examination of the underlying macroeconomic factors that could generate time variation in the gold-CPI linkage suggests gold’s sensitivity to the CPI is related to interest rate changes: a finding that highlights the monetary nature of gold as a commodity.
Number of Pages in PDF File: 22
Keywords: Gold, Inflation, monetary policy
JEL Classification: Q47, O13, C22
Date posted: September 6, 2013 ; Last revised: March 20, 2014
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