In the aftermath of the global financial crisis of 2008, central governments around the world have enacted monetary and fiscal stimulus programs to stave off banking system failure and severe economic downturn.

This has made for a liquidity boom, which, generally speaking, triggers a positive reaction in markets overall. This expansion in global liquidity explains most of the recent upward trend in the stock, bond, commodity and precious metal markets.

But what do these stimulus payments mean for the global inflation outlook? And is gold still the best inflation hedge, as it is commonly perceived to be?

It is clear that these stimulus payments will have some effect on global inflation, however, the extent to which this occurs varies from country to country. A recent study from the Bank of Canada has shown that gold price movements are a significant predictor of inflation across several countries up to two full years in advance. So they are certainly an indicator to watch given the rally in gold prices throughout 2009.

And whether gold is still a suitable hedge in these inflationary times is the subject of constant and intense debate from economists.