Are Precious Metals a Hedge Against Exchange-Rate Movements? An Empirical Exploration Using Bayesian Additive Regression Trees

We use Bayesian additive regression trees (BART) to reexamine whether investments in precious metals are a hedge against exchange-rate movements. We control for the influence of stock-market fluctuations and other factors, we quantify the relative importance of several major exchange rates, and we study how the marginal effects of exchange-rate movements on precious metal returns differ across times of appreciations and depreciations and across times of small and large exchange-rate fluctuations. We find that investments in 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. We also study whether precious metal investments are a safe-haven in times of large exchange-rate movements