Gold's Role in Socio Economic Development, as an Investment Tool and Its Power Against Inflation

Gold's Role in Socio Economic Development; Gold as an Investment Tool and Its Power against Inflation
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Declaration
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Abstract
The world’s economies have become more complex. Economies continue to face challenges from various quotas like inflation. The erosion of purchasing power is a major concern for investors, policymakers and economists. Questions have emerged on ways of mitigating inflationary pressures. One of the proposed approaches is the use of gold to deal with the issue. The historical context reveals gold’s importance in accelerating economic growth, acting as a store of value and a medium of exchange. However, the extent of gold’s impact on economies, particularly acting as an inflation hedge remains a topic of debate. This research undertakes a comprehensive analysis to establish if gold is an effective investment tool and inflation hedge. The study analyzes the link between gold and inflation, establishing the former’s role in mitigating the latter. Gold’s implications for policy formulation are explored, providing recommendations for policymakers, investors and economists on enhancing their portfolios. The study sheds light on gold’s multifaceted role. The results demonstrate gold as an inflation hedge in the short term. The study acknowledges the need for more research to understand the impact of gold on different economic contexts.
Keywords
Gold, inflation, inflation hedge, diversification, portfolio, gold reserves, investment tool and risk management
INTRODUCTION
Background
In the history of humans, gold has occupied a special place not just for its aesthetic appeal, but for its economic essence. The historical significance of gold can be traced back to ancient civilizations like Romans and Egyptians where the commodity was used for storing wealth and trading (Maamar, 2003). Gold, unlike many other metals, is scarce, durable and malleable, making it an effective medium for storing value and exchange for millennia. The shift from batter trade prompted the need for humans to invest in a medium that could be used as a means of exchange. Despite the use of paper money in the contemporary world, gold continues to find widespread use in socioeconomic development. In particular, gold has become not only an investment tool but also a hedge against inflation.
Rationale
Modern financial history and the global market has been the subject of bubbles and crisis (Hashimoto, Im and Kunieda, 2020). For instance, the market crash in 1987, the Asian Crisis in 1989, the dotcom crisis in 2000 and the real estate bubble in 2008 have devasted the world’s economies. While the world’s central banks continue to take measures to ensure that future crises do not adversely affect economies, there is no guarantee that investors will be safe. Traditionally, investors diversify their investment portfolios with three core asset classes; equities, stocks and fixed incomes (bonds) (Gründl and Gal, 2017). However, in the era of globalization, studies demonstrate that the correlations within and between the primary asset classes are rising steadily over time (Fernando, 2017). To make it worse...