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Introduction
Does gold have an ability to act as a hedge against inflation? Many studies conducted recently argue in favor of gold as an inflation hedge (Wang et al. , 2011; Beckmann and Czudaj, 2013; Shahbaz et al. , 2014; Bampinas and Panagiotidis, 2015; Van Hoang et al. , 2016). Although gold is no longer followed by the International Monetary Fund since the breakdown of Bretton Woods, it is still accepted as a durable commodity by both investors and researchers across the globe. Given the complex nature of financial markets, portfolio diversification using hedging has become more important. In particular, the researchers argue that the gold price and consumer price index (CPI) are cointegrated and share a common long-term trend. Therefore, gold may be viewed as safe haven for investors to at least partially hedge the inflation risk. Owing to this property, gold has been able to maintain its unique status in the portfolio of central banks (Aizenman and Inoue, 2012). One of the reasons for gold to be a hedge against inflation could be that the commodity prices incorporate new information faster than the consumer prices (Mahdavi and Zhou, 1997). In fact, Narayan et al. (2016) show that cross-market pricing transmission occurs from gold to bonds to oil and finally to inflation. In addition, gold is durable, transportable and world-wide acceptable in contrast to other commodities (Worthington and Pahlavani, 2007).
The idea of using gold as a hedge against inflation is not new. There is plenty of research exploring this relationship over a period of time. However, the relation between the gold price changes and inflation has not been universally accepted in the literature. For instance, while Ghosh et al. (2004) state that gold may be a hedge against inflation in the long run, however, in short run, it exhibits significant price volatility; Shahbaz et al. (2014) argue that investing in gold is a good hedge against inflation both in the short and long run. On the one hand, Bampinas and Panagiotidis (2015) find that gold can act as a partial hedge against headline, expected and core CPI in the long run; on the other hand, Van Hoang et al. (2016) argue that gold is not a hedge against inflation in the...