Is Gold a Hedge Againts Inflation and Exchange Rate Risks: Evidences from Muslim Majority Countries
Khairul Arifin Lubis, Dony Abdul Chalid

Faculty of Economics and Business, Universitas Indonesia

Abstract

This research aims to analyze gold investment as a hedging tool to overcome the risk of inflation and exchange rate in the Islamic State of the year 2005-2019 period by using the VECM method. The research uses a sample of three developing countries with a majority population of Muslims, namely Turkey, Indonesia, and Malaysia, from 2005 to 2019. The hypothesis testing regarding the determinants of gold assets^ effectiveness as a hedging tool to overcome inflation risk and exchange rate risk. This study finds that gold returns do not have a causal relationship to inflation changes and vice versa. This study also finds that gold returns do not have a causal relationship to changes in exchange rates and vice versa. In the end, the results of this study indicate that gold investment has limited hedge ability against the risk of inflation and exchange rates in Turkey, Indonesia, and, Malaysia.

Keywords: gold return, inflation, exchange rate, hedging, VECM

Topic: Economic Welfare in Terms of Islamic Perspective