We examine the long term dynamic relation between inflation and the price of gold. We begin by showing that there is no cointegration between gold and inflation if the volatile period of the early 1980s is excluded from the data. However, we are also able to demonstrate that there is significant time variation in the relation, such that comovement between the variables has indeed increased in the last decade. Examination of the underlying macroeconomic factors that could generate time variation in the gold-inflation linkage suggests gold's sensitivity to inflation is related to interest rate changes, a finding that highlights the monetary nature of gold as a commodity.
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