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Assessing the hedging potential of gold and other precious metals against uncertainty due to epidemics and pandemics

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  • Abdulsalam Abidemi Sikiru

    (West African Monetary Agency
    Central Bank of Nigeria)

  • Afees A. Salisu

    (University of Ibadan)

Abstract

We assess the hedging capabilities of four prominent precious metals namely gold, palladium, platinum and silver against market risks due to epidemics and pandemics. The research objective is informed by the COVID-19 pandemic which amplifies health risks with attendant concerns for financial markets. We utilize the health-related uncertainty index developed by Baker et al. (Equity market volatility: infectious disease tracker [INFECTDISEMVTRACK], 2020) which measures uncertainty in the financial markets due to infectious diseases including the COVID-19 pandemic and construct a predictive model that accommodates the salient features of both the predictand and predictor series. Our results support the safe haven property only for gold before and during the COVID-19 pandemic. We push the analysis further for in-sample and out-of-sample forecast evaluation and find that accounting for uncertainty due to infectious diseases improves the forecast of the four precious metals relative to the benchmark model (historical average). We highlight for investors that the gold market remains the safest market among the precious metals particularly during the COVID-19 pandemic.

Suggested Citation

  • Abdulsalam Abidemi Sikiru & Afees A. Salisu, 2022. "Assessing the hedging potential of gold and other precious metals against uncertainty due to epidemics and pandemics," Quality & Quantity: International Journal of Methodology, Springer, vol. 56(4), pages 2199-2214, August.
    • Handle: RePEc:spr:qualqt:v:56:y:2022:i:4:d:10.1007_s11135-021-01214-7
    DOI: 10.1007/s11135-021-01214-7
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    Cited by:

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    2. Sen, Chitrakalpa & Chakrabarti, Gagari, 2024. "Beyond the glitter: An empirical assessment of the true risk and hedging role of precious metals," Resources Policy, Elsevier, vol. 96(C).
    3. Raza, Syed Ali & Khan, Komal Akram, 2024. "Climate policy uncertainty and its relationship with precious metals price volatility: Comparative analysis pre and during COVID-19," Resources Policy, Elsevier, vol. 88(C).

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    More about this item

    Keywords

    Epidemics; Pandemics; Precious metals; Hedging; Forecast evaluation;
    All these keywords.

    JEL classification:

    • I19 - Health, Education, and Welfare - - Health - - - Other
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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