Gold is very much in the news these days with prices hitting fresh all-time highs seemingly every day. A recent paper by Dirk Baur of the University of Technology, Sydney, looked for empirical evidence of the factors that explain higher gold prices in data spanning the 1979 to 2010 time period (hat tip to Cameron Passmore of PWL Capital for highlighting this paper in a radio interview).
Highlights from the paper:
– Gold has acted as a hedge against a weaker US dollar and higher commodity prices.
– Gold prices increased when the short-term opportunity cost of holding gold decreased. Prices also increased when investors expected higher long-term inflation.
– Evidence for gold as an inflation hedge is weak.
– Gold acted mainly as a store of value against currency devaluations and commodity price changes until the mid 1990s. Since then, it has assumed an additional role as a safe haven — a hedge against stock market changes.
The paper is available here.