Gold's role in India's rising inflation rate

In India, food and fuel prices are rising, and therefore the inflation indicator has increased: the wholesale price index increased by 15.18% and the consumer price index - by 7.01%.

Scientists from around the world are studying the role of gold as a tool to protect against inflation. So, based on inflation data in the United States for 1976-1999, it was shown that the yellow metal can be used as an inflation hedge in the long term. In another study, based on data on inflation in the United States for 1833-2013, scientists came to similar conclusions.

According to the World Gold Council, the gold exchange rate has a higher correlation with a wide indicator of the money supply, namely, with M2 than with the consumer price index. Gold is a global asset and hedge not only against rising prices for goods and services, but also against declining purchasing power in general, such as real estate, collectibles or financial assets that do not appear in consumer price inflation indices. Indian scientists analyzed the dynamics of the gold exchange rate and the inflation rate based on the consumer price index for the period from 1979 to 2017. and concluded that gold can protect against inflation. A 1% rise in India's inflation rate leads to a 2.6% short-term increase in gold demand.

For example, over the past 40 years, the average annual gold yield in rupees was 10%, clearly ahead of the inflation of the consumer price index, the level of which grew by an average of 7.3% over the same period.

The dynamics of the gold exchange rate was especially positive during periods of high inflation, increasing on average by 12%, when the inflation rate exceeded 6%.