Precious metals; Currencies; Safe haven; Frequency spillovers; COVID-19
In this study, we examine the frequency volatility spillovers, connectedness, and quantile dependence between precious metals futures (gold, palladium, platinum, and silver) and the main US foreign exchange rates of Australia, Canada, China, Eurozone, Japan, Switzerland, and the UK. We use them as a hedging tool for developed currency markets. We further investigate the key drivers of frequency spillovers, before and during COVID-19, and the property of precious metals as a hedge and safe haven against currency risk exposure. We performed the quantile coherency analysis and found that the dependence is positive among the currencies and negative between currencies and precious material in most cases. Using the time-frequency spillovers analysis, we show that gold and silver are net transmitters of spillover to the other markets; however, palladium is a net receiver of spillover for all three horizons. The EUR is a net contributor of risk regardless of the time horizon. Using the quantile regression model, we demonstrate that the effect of the West Texas Intermediate crude oil price (WTI), Economic Policy Uncertainty (EPU) index, volatility index (VIX), and USD index (USDX) on total spillover varies over quantiles in terms of magnitude and direction. Finally, we show that all precious metals can be used as a strong hedge against these major currencies.