Gold Versus Stocks as an Inflationary Hedge: The Case of Spain

Abstract

This study empirically observes two models based on Fisher hypothesis (1930): (1) long-term hedging ability of the stocks and (2) long-term hedging ability of gold against inflation in Spain. Zivot-Andrews (1992) unit root test allowing for one structural break, Maki (2012) cointegration test allowing for five structural breaks, and vector error correction model (VECM) techniques have been applied to monthly data covering the period of January 1994-July 2015. Our results show that stocks and gold are in a long-term equilibrium relationship with inflation. The negative association between inflation and gold with inelastic coefficient and the positive relationship between inflation and stocks with the elastic coefficient are observed. Hence, our findings suggest that only stocks are the hedging instruments against inflation in Spain.