This study examines the conditional volatility and correlation dependency and interdependency for the four major precious metals (that is, gold, silver, platinum and palladium), while accounting for geopolitics within a multivariate system. The implications of the estimated results for portfolio designs and hedging strategies are also analyzed. The results for the four metals system show significant short-run and long-run dependencies and interdependencies to news and past volatility. These results have become more pervasive when the exchange rate and FFR are included. Monetary policy also has a differential impact on the precious metals and the exchange rate volatilities. Finally, the applications of the results show the optimal weights in a two-asset portfolio and the hedging ratios for long positions.

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Erasmus School of Economics
Econometric Institute Research Papers
Report / Econometric Institute, Erasmus University Rotterdam
Erasmus School of Economics

Hammoudeh, S., Yuan, Y., McAleer, M., & Thompson, M. (2009). Precious Metals-Exchange Rate Volatility Transmissions and Hedging Strategies (No. EI 2009-38). Report / Econometric Institute, Erasmus University Rotterdam (pp. 1–43). Retrieved from