Do precious metals have a capacity to hedge against inflation?

  • Franciszek Mochnacz Franciszek Mochnacz

This study examines the inflation-hedging capacity of four precious metals: gold, silver, platinum and palladium. The ability to hedge is assessed using nominal spot returns of precious metals and the CPI inflation rate. The inflation-hedging potential is measured by the Pearson correlation coefficient as well as three alternative hedging measures. Moreover, the hedging capacity is analyzed across different investment horizons and two sample periods (1974/2013 and 1990/2013). The evidence from this research shows that individual precious metals should not be considered as substitutes in reducing the inflation risk. This paper established that gold and platinum have the most significant and reliable inflation-hedging capacity among the investigated precious metals. On the whole, all analyzed assets consistently exhibit the inflation-hedging property, particularly during the episodes of economic and financial turmoil.

Netspar, Network for Studies on Pensions, Aging and Retirement, is a thinktank and knowledge network. Netspar is dedicated to promoting a wider understanding of the economic and social implications of pensions, aging and retirement in the Netherlands and Europe.


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