Oil and precious metals: Volatility transmission, hedging, and safe haven analysis from the Asian crisis to the COVID-19 crisis

Abstract

This paper examines the volatility transmission between crude oil and four precious metals (i.e., gold, silver, platinum, and palladium) and investigates whether oil can be considered as a hedge or safe-haven asset against four precious metals. Our empirical analysis reveals several important findings. First, we determine that the volatility transmission was time-varying and that influence from the Asian crisis, the bursting of the dot-com bubble, the 2008 global financial crisis, the recent oil-price crash, and COVID-19 alternated between negative and positive values over the entire studied period. We further conclude that Brent oil is a diversifier and a weak safe haven for precious metals; and thus, that a combined portfolio composed of Brent-oil and precious-metals futures yields better hedging effectiveness. These findings indicate that oil futures are a useful investment that reduces downside risks and strengthens diversification benefits in portfolio risk management.