Assessing the inflation hedging of gold and palladium in OECD countries

In this study, we examine the inflation hedging potential of the two most valuable precious metals namely gold and palladium. Our data covers a wide range of OECD countries which currently account for over 70 per cent of the demand for both precious metals. We employ both time series and panel data techniques for country-specific and group analyses. On the average, we find that both gold and palladium provide hedge against inflation in OECD countries notwithstanding the varying results across the individual countries. While the inflation-hedging potential of gold has been sustained, it only improves for palladium after the Global Financial Crisis. Also, the predictive model for palladium appears to offer better forecast results than gold. The former outperforms the historical average (constant returns) model both for the in-sample and out-of-sample forecasts while the latter fails to beat the benchmark model for the out-of-sample forecasts. The results leading to these conclusions are sensitive to data frequency.