Abstract

Gold finds common use as a store of value, medium of exchange and instrument of investment. It is widely believed that rarity, hedging and safe-haven properties of gold largely drive investor sentiments. The time series uses monthly data, dating back to 1990, accounting in aggregate for a period after the abolishment of gold standards. The paper concludes with definitive reasoning of when and why investments in gold can be made- analysing Gold’s level prices and returns in relation to Stock Market Indices, Inflation Expectation and Consumer Sentiments. Gold was shown as an effective hedge against stocks, however, its role as a store of value in an inflationary environment was disputed. Similarly, it was hypothesised that gold may not be popularly conceived as a safe haven to rising inflation expectations. A negative correlation was found between gold and consumer sentiments. A time scale analysis was carried out between Gold, Consumer Sentiments and inflation expectations to provide further insight. Furthermore, suggestions for future studies were pointed out and policy implications were considered.

Keywords: Stock Index, Gold Prices, Inflation Expectation, Stationarity, Wavelet Coherence, Granger non-causality test, Cointegration, Investor sentiments, Modern Portfolio Theory