Inflation Risk Premium and Gold Pricing: An Empirical Study Based on Asymmetric Effects

Abstract

The traditional inflation hedging theory cannot effectively explain the realistic contradiction that “gold price does not rise when inflation soars”. This paper decomposes inflation expectations into expected inflation and inflation risk premium, and uses gold price monthly data from 2018 to 2025 to test the asymmetric impact of inflation risk premium on gold yield. The conclusions are as follows: First, IRP has a clear positive driving effect on gold yield (coefficient = 3.86, p = 0.030). Second, the effect is highly asymmetric: when IRP is positive (the market is worried about inflation risk), the coefficient is as high as 15.09 (p = 0.003), while when IRP is negative, the coefficient is only 1.58 and not statistically significant. More importantly, when the short-term inflation expectation difference is used as an alternative measure, the variable is no longer significant, which leads to the conclusion that the long-term term structure of inflation risk premium is extremely important, and thus supports the rationality and specificity of the benchmark measure selected in this paper. Therefore, the logic of this paper is supported: gold hedging is not inflation itself, but the market's concern about currency credit depreciation, that is, “inflation risk”.