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The yen for gold

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  • Wang, Kuan-Min
  • Lee, Yuan-Ming

Abstract

In this article, we examine whether gold could be an exchange rate hedge in Japan, using data from 1986 to 2007. In the literature on this area, most research focuses on the linear relationship--rather than the non-linear one--between gold returns and the exchange rate fluctuation of the Japanese yen. In the present paper, we use the depreciation rate of the yen as a threshold variable to distinguish between a high depreciation regime and a low depreciation (or appreciation) regime. With this specification, we build a threshold vector autoregressive model to investigate the causality between the gold return and the yen depreciation rate. We find that when the yen depreciation rate is greater than 2.62%, investing in gold could avoid the depreciation loss. Therefore, we conclude that the effectiveness of gold as an exchange rate hedge depends on the depreciation rate of the yen. This finding could benefit both the Japanese monetary authority and investors who hold Japanese yen in their portfolios.

Suggested Citation

  • Wang, Kuan-Min & Lee, Yuan-Ming, 2011. "The yen for gold," Resources Policy, Elsevier, vol. 36(1), pages 39-48, March.
  • Handle: RePEc:eee:jrpoli:v:36:y:2011:i:1:p:39-48
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Thai-Ha Le & Youngho Chang, 2011. "Oil and gold: correlation or causation?," Economics Bulletin, AccessEcon, pages 1-31.
    2. Beckmann, Joscha & Berger, Theo & Czudaj, Robert, 2015. "Does gold act as a hedge or a safe haven for stocks? A smooth transition approach," Economic Modelling, Elsevier, vol. 48(C), pages 16-24.
    3. Le, Thai-Ha & Chang, Youngho, 2011. "Dynamic relationships between the price of oil, gold and financial variables in Japan: a bounds testing approach," MPRA Paper 33030, University Library of Munich, Germany.
    4. repec:cii:cepiei:2012-q3-131-4 is not listed on IDEAS
    5. Hoang, Thi-Hong-Van & Wong, Wing-Keung & Zhu, Zhenzhen, 2015. "Is gold different for risk-averse and risk-seeking investors? An empirical analysis of the Shanghai Gold Exchange," Economic Modelling, Elsevier, vol. 50(C), pages 200-211.
    6. Ming, Lei & Yang, Shenggang & Cheng, Cheng, 2016. "The double nature of the price of gold—A quantitative analysis based on Ensemble Empirical Mode Decomposition," Resources Policy, Elsevier, pages 125-131.
    7. Reboredo, Juan C., 2013. "Is gold a safe haven or a hedge for the US dollar? Implications for risk management," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 2665-2676.
    8. Beckmann, Joscha & Czudaj, Robert, 2013. "Gold as an inflation hedge in a time-varying coefficient framework," The North American Journal of Economics and Finance, Elsevier, vol. 24(C), pages 208-222.
    9. Reboredo, Juan C. & Rivera-Castro, Miguel A., 2014. "Can gold hedge and preserve value when the US dollar depreciates?," Economic Modelling, Elsevier, vol. 39(C), pages 168-173.
    10. repec:zbw:rwirep:0502 is not listed on IDEAS
    11. Ntim, Collins G. & English, John & Nwachukwu, Jacinta & Wang, Yan, 2015. "On the efficiency of the global gold markets," International Review of Financial Analysis, Elsevier, vol. 41(C), pages 218-236.
    12. Ghazali, Mohd Fahmi & Lean, Hooi Hooi & Bahari, Zakaria, 2015. "Sharia compliant gold investment in Malaysia: Hedge or safe haven?," Pacific-Basin Finance Journal, Elsevier, pages 192-204.
    13. Wang, Kuan-Min & Lee, Yuan-Ming & Thi, Thanh-Binh Nguyen, 2011. "Time and place where gold acts as an inflation hedge: An application of long-run and short-run threshold model," Economic Modelling, Elsevier, vol. 28(3), pages 806-819, May.
    14. Gülseven, Osman & Ekici, Özgün, 2016. "The Turkish appetite for gold: An Islamic explanation," Resources Policy, Elsevier, pages 41-49.
    15. Reboredo, Juan C. & Rivera-Castro, Miguel A., 2014. "Gold and exchange rates: Downside risk and hedging at different investment horizons," International Review of Economics & Finance, Elsevier, vol. 34(C), pages 267-279.
    16. Pierdzioch, Christian & Risse, Marian & Rohloff, Sebastian, 2015. "A real-time quantile-regression approach to forecasting gold returns under asymmetric loss," Resources Policy, Elsevier, pages 299-306.
    17. Pierdzioch, Christian & Risse, Marian & Rohloff, Sebastian, 2016. "Are precious metals a hedge against exchange-rate movements? An empirical exploration using bayesian additive regression trees," The North American Journal of Economics and Finance, Elsevier, vol. 38(C), pages 27-38.
    18. Aye, Goodness C. & Carcel, Hector & Gil-Alana, Luis A. & Gupta, Rangan, 2017. "Does gold act as a hedge against inflation in the UK? Evidence from a fractional cointegration approach over 1257 to 2016," Resources Policy, Elsevier, pages 53-57.
    19. Joscha Beckmann & Theo Berger & Robert Czudaj, 2014. "Does Gold Act as a Hedge or a Safe Haven for Stocks? A Smooth Transition Approach," Ruhr Economic Papers 0502, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    20. Baur, Dirk G., 2011. "Explanatory mining for gold: Contrasting evidence from simple and multiple regressions," Resources Policy, Elsevier, vol. 36(3), pages 265-275, September.

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