As good as gold? About the financial implications of gold and silver

Abstract

International currency or production asset? Safe haven or classical commodity? This thesis offers insights into the financial implications of gold and silver by focusing on three distinct investigations motivated by a brief history on the role of the two precious metals in fiscal and financial politics, and underpinned by a thorough literature review identifying research fields that are better explored than others.

A first investigation offers insights into the relationship between precious metals and a set of different inflation measures in the United States of America, the United Kingdom of Great Britain and Northern Ireland, and Japan. A clean and modern methodology uncovers time-variation in the relationship between precious metals and inflation for all countries; but also the superiority of silver as a hedging tool in the United Kingdom and Japan.

The second focus of this thesis is set around model specification and relies on a complex big data methodology allowing the computation of millions of possible realistic scenarios in order to discover possible variables associated with price movements of gold and silver. While results point towards the importance of classical variables such as the US Dollar and inflation, other less traditional variables appear to be more important than initially suggested - such as the UK economic uncertainty index or the S&P Case-Shiller national home price index.

The final research question considered offers unique insights into the drivers of physical gold and silver demand for a large set of countries. A combination of sophisticated linear and dynamic panel data models is applied and empirical insights are obtained. Results for gold point towards a positive relationship with short-term yields and economic uncertainty, while stronger country-specific effects are uncovered for silver.