Can precious metals hedge geopolitical risk? Fresh sight using wavelet coherence analysis

Sheng Cheng, Zongyou Zhang and Yan Cao

Resources Policy, 2022, vol. 79, issue C

Abstract: Based on wavelet coherence analysis, this paper explores whether precious metals can be used to hedge geopolitical risk (GPR) and whether there is an asymmetry in the hedging effect when GPR rises or falls in time and frequency domains. In addition, we obtain the lead-lag relationship between precious metals and GPR under different time-frequency effects. The main findings are summarized as follows. First, gold and silver are good assets to hedge against GPR in the short and medium term. Second, the relationship between GPR and precious metals shows a significant asymmetry when GPR rises and falls. Third, all four precious metals can hedge both GPR and the negative change of GPR in the medium term. Finally, it is worth noting that both gold and silver are leaders in GPR changes. These new findings in this paper provide an essential reference for investors and policymakers from different time scale perspectives.

Keywords: Precious metals; Geopolitical risk; Wavelet coherence; Hedge; Asymmetry (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (14)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jrpoli:v:79:y:2022:i:c:s0301420722004159

DOI: 10.1016/j.resourpol.2022.102972

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