Can Gold Provide a Hedge against Inflation and Exchange Rate Movements in Ghana?

Abstract

In this work, we examined whether gold can provide a safe haven against inflation and exchange rate movement in Ghana using data spanning 1990-2012. We employed the regression model. Our findings reveal that, gold serves as both a perfect and imperfect hedge against inflation. For exchange rate, the findings suggest that gold is able to perfectly hedge against any exchange rate movement. This shows that in the event of any inflation or currency depreciation, gold investors tend to benefit more because gold hedges them against these risks. The study also discusses some policy implications which encourages investors to invest more in gold as it is able to serve as a hedge against inflation and exchange rate movement when held for a long period of time. Same cannot be said for gold hedging against inflation and exchange rate movement.