Are precious metals a hedge against exchange-rate movements? An empirical exploration using bayesian additive regression trees

• We use BART modeling to model precious metal returns.
• Gold and silver are strong hedges against depreciations of several major exchange rates.
• The hedging properties of palladium and platinum are mainly confined to the Australian dollar and Canadian dollar.
• Empirical results shed light on the safe-haven property of precious metals investments.

We use Bayesian additive regression trees to reexamine whether investments in precious metals are a hedge against exchange-rate movements. We quantify the relative importance of several major exchange rates, and we study how the marginal effects differ across times of appreciations/depreciations and across times of small/large exchange-rate fluctuations. Results show that investments in gold and silver are strong hedges against depreciations of major exchange rates. The hedging properties of palladium and platinum are mainly confined to the Australian dollar and Canadian dollar. We also study whether precious metals investments are a safe-haven in times of large exchange-rate movements.