The effects of global uncertainty and risks on metal prices: Evidence from frequency and time domain causality tests

Abstract

Metal prices are heavily affected by global uncertainties and risks. Empirical studies have analyzed the causality between global uncertainties, risks, and metal prices using traditional methods and ignored the frequency and time-domain relations. The study aims to fill the existing research gap by analyzing the relationship between global uncertainties and risks and metal prices, considering the effects on the supply side of metals and their prices on the demand side. Therefore, using the news-based GEPU and GPR indices for 1990:01–2024:04, the relationships between uncertainties and risks and price returns of the most traded base and precious metals in international markets are analyzed with frequency and time domain Granger causality tests. The results show that the relationship between GPR and GEPU and the returns of metals is not uniform enough to be explained by the traditional Granger causality tests used in previous studies and varies significantly according to the frequency-time domain. According to the frequency domain, unidirectional and bidirectional causality relationships were found between GPR and GEPU and metal prices in the short, medium, and long run. In addition, in the time domain, the causality relationships between GPR, GEPU, and metal price returns coincide with periods of increased uncertainties and risks or economic recessions such as the 2008 global financial crisis and the COVID-19 pandemic experienced by the global economy. These results emphasize the importance of strategic planning for the sustainability of economic development, as governments should diversify markets and turn to alternative sources of supply for the supply of needed metals.