Hedging exchange rate risk in the gold market: A panel data analysis

• We examine whether gold is used to hedge against exchange rate risks.
• We apply panel data from January 1999 to March 2015.
• Our results show that exchange rate fluctuations result in threshold effects.
• We show the threshold effects influence the hedging effectiveness of gold.
• The hedge effects in the major gold-consuming countries are greatest.

This study examines whether gold is used to hedge against exchange rate risks globally or exhibits different properties in the major gold-producing, gold-consuming, and key currency countries. We apply panel data from January 1999 to March 2015 to test whether the effectiveness of gold in this regard differs for these three groups of countries. Our dynamic panel threshold model results show that exchange rate fluctuations result in threshold effects and influence the hedging effectiveness of gold. Additionally, we use weekly, monthly, and quarterly data to analyze the time horizon of the hedging properties of gold. Our findings reveal that except for the results for the quarterly data, the weekly and monthly data results show that the hedge effects in the major gold-consuming countries are greater than those in the major gold-producing countries.