Abstract:
We examine the potential of gold and other precious metals as safe havens during negative
market shocks caused by the Global Financial Cycle (GFCy). We analyze a vast global vector
autoregressive (GVAR) model that includes developing and emerging market countries for a total of
33 countries, from 1979:Q2 to 2019:Q4. This approach allows us to account for individual country
peculiarities while also considering the transmission of global shocks. We found that during financial
market distress caused by a negative GFCy shock, gold, silver and platinum all serve as hedges.
Interestingly, our results suggest that silver and platinum are better hedges than gold, offering greater
positive returns in response to negative GFCy shocks, especially in recent years. Overall, our findings
support the benefits of investing in precious metals, as they can help investors mitigate losses resulting
from global financial shocks. While the metals vary in their hedging ability, platinum and silver offer
even greater protection than gold.
