Explanatory Mining for Gold: Contrasting Evidence from Simple and Multiple Regressions
24 Pages Posted: 20 Sep 2010
Date Written: September 20, 2010
Gold traditionally has been used as a store of value and an inflation hedge. More recently, gold is also viewed as a hedge against uncertainty and a safe haven. This paper demonstrates that most of the properties regularly associated with gold are only valid within a simple regression framework but lose its strength and significance in a multiple regression framework. A descriptive and econometric analysis of gold and US economic and financial variables for a 30-year period from 1979 to 2010 shows that gold primarily serves as a hedge against a weaker US dollar and against higher commodity prices. In contrast, gold is not a hedge against higher consumer prices. The empirical results also indicate that gold evolved as a safe haven only recently.
Keywords: gold, store of value, inflation hedge, exchange rate, safe haven, uncertainty, cost of carry
JEL Classification: E40, F30, G10, G11
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