Gold's Role in Socio-Economic Development: Gold 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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Research Proposal
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, the correlation tends to be upward, especially during economic turbulence as many investors experienced in the 2008 crisis. Consequently, investors encounter shrinking diversification benefits and a lack of protection at the time when they needed such most. Such a scenario is worrying at a time when financial instability is common. Because of the dangers involved, investors are considering assets less correlated with traditional classes as a way of diversifying their portfolios (Hight, 2010). Gold has been proposed as one of the investment tools that can cushion investors against inflation.
The role of gold in social economic development and its significance as an investment tool has been subject to extensive debate with researchers arriving at different conclusions on the issue. Proponents of gold believe that it has a low correlation with equities, bonds and inflation, making it an important commonality in investment portfolios (Fernando, 2017). Commodity gold is viewed as a haven asset that can offset the losses that occur because of the low negative correlation with the market. The history of gold and particularly its stability has seen some investors retreating to it in times of uncertainty (McKay and Peters, 2017). Such history rationalizes gold as an alternative to the unstable paper currency. What makes gold an appropriate inflationary hedge is its low correlation with inflation or currency devaluation. The price of gold tends to increase which balances the inflationary effects and causes an upward trend in the price of gold hence maintaining the purchasing power. At the same time, gold has higher gains compared to equity and bond markets (Dutta, Bouri and Noor, 2021). Such advantages have caused a renewed interest in gold as an alternative investment and a portfolio diversifier. On the other hand, gold sceptics consider the commodity as an unproductive asset that relies on the fear of investors. They argue that gold has no intrinsic value and lacks monetary qualities (Fernando, 2017). Opponents of gold commodity indicate that in a modern economic environment, paper or digital currency is the money of choice, and that gold’s only worth is in material for making other products like jewelry. An understanding of the relationship between gold and socioeconomic development is critical for policymakers, investors and economists to enable them to make informed decisions and come up with appropriate strategies. Moreover, an exploration of gold’s potential as a hedge against inflation is critical for investors in times of economic instability. In particular, this rationale offers comprehensive justification for analyzing the role of gold social economic development, together with its role as an investment tool and its ability to deal with inflation.
Objectives and Observable Outcomes
1 Question: What is the historical significance of gold in social economic development and its implication on economies?
Aim: The aim is to analyze the historical significance of gold in socioeconomic development and how it impacts economies.
2 Question: What are the factors that influence the value of gold as an investment tool and compare it with other asset classes?
Aim: To make a comparative assessment of gold’s performance as an investment tool and consider its risks and returns.
3 What is the relationship between gold and inflation to establish the former’s potential as a hedge against inflationary pressures?
Aim: To analyze the link between gold prices and inflation, hence assessing its effectiveness as an inflation hedge
4 What are the implications of the role of gold in socioeconomic development for policy formulation and investment strategies?
Aim: To identify the practical implications and recommendations for policymakers and investors based on the findings about the role of gold in socio-economic development.
5 What are the practical insights and recommendations for policymakers, investors and economists on how gold can be used as a hedge against inflationary pressures?
Aim: To formulate recommendations for policymakers, investors and economists considering its role in socioeconomic development and its potential as an investment tool and inflation hedge.
Method, Data & Ethics
The proposed research will employ a secondary research approach. The researcher will undertake an extensive literature review to identify relevant scholarly articles, reports and publications related to the role of gold and its role as an investment tool and its implications on socio-economic development. The review will cover various sources including academic journals, government publications and financial institutions’ reports. The investigator will examine studies on the research topic that are relevant to the study objectives. The researcher will identify a list of keywords that are relevant to the research objectives. The keywords include gold, investment, inflation, socioeconomic development, portfolio diversification, and hedge. The identified keywords will be used to search for the relevant literature in academic libraries and other credible sources online.
Next, the most appropriate databases and sources will be identified. Academic databases will be prioritized since they contain peer-reviewed journals. Google Scholar will be used to supplement the academic databases and topside more materials that may not be available on these databases, yet are relevant to the research topic. Next, a literature search will be conducted using the identified keywords. A refining of the search will be done to ensure that the materials u...