Explanatory mining for gold: Contrasting evidence from simple and multiple regressions

Gold traditionally has been used as a store of value and an inflation hedge. More recently, gold is also viewed as a hedge against uncertainty and a safe haven. This paper demonstrates that many properties regularly associated with gold are only valid in a simple regression framework but significantly change in a multiple regression framework. A descriptive and econometric analysis of gold and US economic and financial variables for monthly data from 1979 to 2011 shows that gold primarily serves as a hedge against a weaker US dollar and against higher commodity prices. In contrast, gold is not a hedge against consumer price inflation. The empirical results also indicate that gold only recently evolved as a safe haven asset.

► “Mining for explanations” of gold price changes leads to spurious results.
► Common notion of gold as a hedge against inflation does not hold.
► Consumer price inflation is insignificant in multiple regression.
► Gold primarily serves as a hedge against a weaker US dollar.
► Gold only recently became a safe haven asset against financial market shocks.