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Can gold investment provide a hedge against inflation and exchange rate? Evidence from a former Gold Coast

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  • Alhassan Musah
  • Muazu Ibrahim

Abstract

This paper investigates whether or not gold provides a perfect hedge against inflation and exchange rate in Ghana relying on data spanning 1990-2012. In addition to applying a unit root testing approach robust for finite samples, we employed the Johansen multivariate cointegration test procedure and vector error correction model (VECM). Our findings suggest that for long-term investors, gold could provide an imperfect hedge against inflation and exchange rate. The latter effect is however minuscule. On the contrary, gold does not provide any hedge if held for only a short-term. Irrespective of the time horizon, economic growth negatively affects gold prices suggesting that people diversify their portfolios when incomes increase. The study also discusses some policy implications.

Suggested Citation

  • Alhassan Musah & Muazu Ibrahim, 2015. "Can gold investment provide a hedge against inflation and exchange rate? Evidence from a former Gold Coast," International Journal of Economics and Business Research, Inderscience Enterprises Ltd, vol. 10(2), pages 148-166.
    • Handle: RePEc:ids:ijecbr:v:10:y:2015:i:2:p:148-166
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