An evaluation of gold as an inflation hedge: Empirical evidence from South Africa

The purpose of this study is therefore to thoroughly examine the use of gold as an inflationary hedge in the South African environment. In South Africa, the problem of inflation is a particularly severe one, with inflation rates reaching double figures periodically. The necessity of a hedge against inflation is therefore imperative to South African investors, to mitigate their diminishing real returns. The study extends over the period of 2000 -- 2014, to incorporate for the Monetary Policy Committee in South Africa's introduction of the inflation targeting regime. Testing was conducted on the data over both the short run and long run, by making use of OLS regressions for the short run analysis, and Johansen's Cointegration for the long run analysis. The long run analysis found that both gold and the krugerrand were able to hedge against both actual and unexpected inflation, but not anticipated inflation. The results overall also found that gold had the superior hedging ability from the two alternatives.