An Assessment of Gold as a Hedge or Safe Haven: Evidence from Major Gold Producing Countries

Abstract

In the era of globalization, co-movement among the various financial assets has increased drastically and diversification benefits have reduced. Further, increased uncertainties in the financial system posed a serious challenge to researchers and investors in the search for alternative avenues for safeguarding their wealth and risk management. Therefore, using daily time series data that spans from January 2000 to March 2020, the study assesses the role of gold as a hedge and safe haven against equity market indices of major gold producing countries. The GARCH model, which covers average gold returns, highlighted the hedge and safe haven ability of gold in different quantiles of the return distribution. The results revealed that the severity of shock rarely matters in capturing the demand for safe haven assets. Additionally, a comparative analysis during crises evidenced a more heterogeneous and larger effect during the dot-com bubble burst in comparison with other selected crises. The robustness analysis through wavelet coherence with the predominance of red bounds and westward-facing arrows indicates the strong safe haven effect of gold during most of the crisis periods in the cases of Australia and South Africa. Furthermore, an improved understanding of such hedge and safe haven behavior patterns may have substantial implications for hedgers, portfolio managers, investors, and policy makers.