Gold-Backed Cryptocurrencies, Precious Metals, and Hedging Performance: Evidence from Dynamic Dependence Structures

Abstract

This study compares gold-backed and conventional cryptocurrencies in terms of dependence structures and hedging effectiveness relative to precious metals. Daily data for gold, silver, cryptocurrencies, gold-backed cryptocurrencies, and USD-backed stablecoins from July 2020 to March 2026 are analyzed using a multivariate stochastic volatility framework with a grouped factor structure. Gold-backed cryptocurrencies move closely with gold and silver and provide meaningful hedging benefits. Conventional cryptocurrencies present weaker and less stable relationships with precious metals, reducing hedging potential. Important differences emerge between gold and silver, suggesting that precious metals should not be treated as a homogeneous asset class. Gold-backed cryptocurrencies appear much more closely aligned with precious metals than conventional cryptocurrencies. Additional analyses show that hedging effectiveness increases substantially during periods of elevated volatility, particularly for PAXG and XAUT, indicating stronger risk-reduction benefits under stressed market conditions. Robustness tests using SPDR Gold Shares (GLD) confirm the stability of the main findings. The findings are relevant for portfolio diversification, hedging decisions, and risk management.