Gold and exchange rates: Downside risk and hedging at different investment horizons

摘要

This paper assesses the hedging and downside risk benefits of using gold for currency risk management at different investment horizons. Using wavelet multi-resolution analysis, we characterized market interdependence between gold and exchange rates for different time scales, finding positive dependence between gold and US dollar depreciation against a wide set of currencies for all time scales for the period January 2000 to March 2013. The analysis for mixed gold-currency portfolios confirms the usefulness of gold in currency hedging and downside risk management at different investment horizons, even though the size of the benefits varies through investment horizons, with benefits circumscribed to specific kind of portfolios, namely, those whose weights are optimally determined.