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What do we know about the inflation-hedging property of precious metals in Africa? The case of leading producers of the commodities

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  • Adekoya, Oluwasegun B.
  • Oliyide, Johnson A.
  • Tahir, Hammad

Abstract

Against the limited evidence of inflation-hedging potential of precious metals in Africa, this study examines the possibility of the four most popular and globally traded precious metals, namely gold, platinum, silver and palladium, in hedging investors against inflation risks in six African countries known for the production of the metals. We employ different empirical techniques in order to explore the inherent statistical features of the series. On a general note, we believe more in the results of the regime-dependent model which reveals the presence of nonlinearity and time variation in the results and show improved hedging performance. Our results suggest that inflation risks can be hedged by at least one precious metal in all the selected countries. Silver and gold provide the strongest (in five countries, i.e. Ghana, Morocco, Namibia, South Africa and Tanzania) and weakest (in just one country, i.e. Namibia) hedging performances respectively. Also, Namibia is the country whose inflation risks can be hedged by the highest number of metals (i.e. gold, silver and palladium). From these findings, we suggest that investors in these countries should begin to explore the effective strength of metals against the increasing risks of inflation inherent in most African countries. Also, the influencing role of nonlinearity and time variation should not be overlooked.

Suggested Citation

  • Adekoya, Oluwasegun B. & Oliyide, Johnson A. & Tahir, Hammad, 2021. "What do we know about the inflation-hedging property of precious metals in Africa? The case of leading producers of the commodities," Resources Policy, Elsevier, vol. 72(C).
    • Handle: RePEc:eee:jrpoli:v:72:y:2021:i:c:s0301420721001343
    DOI: 10.1016/j.resourpol.2021.102120
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    Cited by:

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    2. Oliyide, Johnson A. & Adekoya, Oluwasegun B. & Marie, Mohamed & Al-Faryan, Mamdouh Abdulaziz Saleh, 2023. "Green finance and commodities: Cross-market connectedness during different COVID-19 episodes," Resources Policy, Elsevier, vol. 85(PA).
    3. Cheng, Sheng & Zhang, Zongyou & Cao, Yan, 2022. "Can precious metals hedge geopolitical risk? Fresh sight using wavelet coherence analysis," Resources Policy, Elsevier, vol. 79(C).
    4. NEIFAR, MALIKA & HACHICHA, Fatma, 2022. "GFH validity for Canada, UK, and Suisse stock markets: Evidence ‎from univariate and panel ARDL models," MPRA Paper 114613, University Library of Munich, Germany.
    5. Sephton, Peter S., 2022. "Revisiting the inflation-hedging properties of precious metals in Africa," Resources Policy, Elsevier, vol. 77(C).
    6. Evrim Mandaci, Pınar & Azimli, Asil & Mandaci, Nazif, 2023. "The impact of geopolitical risks on connectedness among natural resource commodities: A quantile vector autoregressive approach," Resources Policy, Elsevier, vol. 85(PA).

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    More about this item

    Keywords

    Precious metals; Inflation risks; Hedging; Nonlinearity; Time-variation; Africa;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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