Assessing the inflation hedging of gold and palladium in OECD countries. (August 2019)

• Record Type: Journal Article
• Authors: Salisu, Afees A.; Ndako, Umar B.; Oloko, Tirimisiyu F.
• Is Part Of: Resources policy. Volume 62(2019)
• Page Start: 357
• Page End: 377
• Publication Date: 2019-08
• Subjects: Gold -- Palladium -- Risk hedging -- OECD countries; Mines and mineral resources -- Periodicals; Ressources minérales -- Périodiques; Ressources naturelles -- Gestion -- Périodiques; Environnement -- Politique gouvernementale -- Périodiques; 333.8
• DOI: 10.1016/j.resourpol.2019.05.001
• Languages: English
• ISSNs: 0301-4207

Abstract

Abstract: In this study, we examine the inflation hedging potential of the two most valuable precious metals namely gold and palladium. Our data covers a wide range of OECD countries which currently account for over 70 per cent of the demand for both precious metals. We employ both time series and panel data techniques for country-specific and group analyses. On the average, we find that both gold and palladium provide hedge against inflation in OECD countries notwithstanding the varying results across the individual countries. While the inflation-hedging potential of gold has been sustained, it only improves for palladium after the Global Financial Crisis. Also, the predictive model for palladium appears to offer better forecast results than gold. The former outperforms the historical average (constant returns) model both for the in-sample and out-of-sample forecasts while the latter fails to beat the benchmark model for the out-of-sample forecasts. The results leading to these conclusions are sensitive to data frequency. Highlights: The inflation hedging potential of gold and palladium is comparatively evaluated using OECD data. Palladium offers a higher return than gold although the former is riskier than the latter. The inflation hedging potential of both commodities seems relatively similar over the full period. However, palladium offers superior hedging performance than gold after the global financial crisis. The predictive model for palladium appears to offer better forecast results than gold.