The Islamic Gold Dinar: An Alternative Hedging Tool?

Abstract:     
This study examines the viability of the Islamic Gold Dinar as a hedging tool against currency exchange rate risk. Using the Auto Covariance Ratio the paper attempts to identify the percentage of time gold value is stable in the currency exchange market on a daily basis for a period of 12 years against the US Dollar and Malaysian Ringgit. This study also examines the volatility of gold prices relative to a host of other currencies using conventional standard deviation. Our findings show that the value of gold is more stable than the US dollar and Malaysian Ringgit over the sample period. However our findings also reveal that the volatility of gold prices itself has been progressively rising since 2003. Further tests reveal that the volatility of gold prices are highly correlated with the volatility of other national currencies. We conclude that the Islamic Gold Dinar cannot as yet be used as a hedging tool for exchange rate risks.

Number of Pages in PDF File: 10

Keywords: Gold Dinar, exchange rate risk, hedging, stability

working papers series