The inflation hedging ability of domestic gold in Malaysia

Abstract

Among the investment assets, gold is historically been thought as a powerful inflation hedge to many households in Malaysia. This paper examines and compares the hedging properties of gold against both consumer and energy inflation risks in Malaysia. Using the monthly domestic gold price, we test the long-run and short-run relationships between gold return and consumer inflation as well as energy inflation. We find that gold investment in Malaysia is a good hedge against consumer inflation and energy inflation in the long run but not for the short run. We also could not find any evidence of short-run causality between gold return and both consumer and energy inflations.