Statistical Analyses:
PRECIOUS METALS
Precious metalsm, including gold, silver and platinum, can be effective hedges but they are also known to be "fickle". Their effectiveness can be reduced due to market overcrowding and changes in political trends. Therefore, we recommend using precious metals as a small percentage of an overall protfolio, and investors should proceed cautiously.
ENERGY
Longer-term data for WTI (Crude Oil) and Natural Gas aslo show inconsistent signs of correlations with short-term US Treasurys across all lag periods, with very different magnitudes depending on the lag. The energy market does have sufficient liquidity so that an investor can run rolling short-term future contracts as an interim hedging solution.
INTERNATIONAL BONDS
Longer-term data for US Dollar Index with no or short lag suggest that DXY can be a consistent hedge. When an investor is attempting to diversify from overconcentration in US-Dollar-based assets, investing in an international bond portfolio may be a sensible long-term solution, since doing so avoids the costs and logistics associated with futures, but such a portfolio will need to be managed by professionals.
OVERALL RECOMMENDATIONS
If an investor uses mutliple hedging vehicles, it is crucial to correctly capture the correlation betweem multiple hedging vehicles and account for higher-order moments. These objective statistical facts point to the importance of using proper professional tools instead of making cursory hedging calculations on spreadsheets.
