Gold and Silver as Hedging Asset During Financial Instability in Lebanon
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This study examines the effectiveness of gold and silver as hedging instruments during Lebanon’s prolonged financial crisis, characterized by severe currency depreciation, banking sector collapse, and high inflation. Using a quantitative empirical framework, the research analyzes international gold and silver prices alongside Lebanese pound exchange rate movements and inflation indicators to assess their role as wealth-preserving assets in a highly unstable economic environment. The study evaluates returns, volatility, correlation structures, cointegration relationships, and dynamic shock transmission using Vector Autoregression (VAR) models and impulse response functions (IRF). The results show that both gold and silver produced a positive payoff in the times of intense currency depreciation indicating that the purchasing power was partially retained. Nevertheless, gold was found to be more stable in prices and less volatile and thus its application as a classic safe-haven asset is supported, whereas silver was observed to have a higher potential of returns and much larger volatility because of its dual monetary and industrial characteristics. The weak correlation analysis indicates that precious metals and domestic financial indicators have weak connections, which is justified by their applicability in hedging during crisis situations. Also, the outcomes of cointegration tests indicate a long-term equilibrium between the price of gold and silver, whereas dynamic tests indicate that the responses to economic shocks are interdependent.
Keywords
Currency depreciation, Emerging Markets, Financial Crisis, Gold, Hedging Strategies, Impulse Response Function (irf), Silver, Vector Autoregression (var), Wealth Preservation