22 Pages Posted: 6 Sep 2013 Last revised: 20 Mar 2014
Date Written: 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.
Keywords: Gold, Inflation, monetary policy
JEL Classification: Q47, O13, C22
Suggested Citation: Suggested Citation
Batten, Jonathan A. and Ciner, Cetin and Lucey, Brian M., On the Economic Determinants of the Gold-Inflation Relation (March 19, 2014). Available at SSRN: https://ssrn.com/abstract=2320754 or http://dx.doi.org/10.2139/ssrn.2320754
By Dirk Baur