Is gold a safe haven? International evidence

The aim of this paper is to examine the role of gold in the global financial system. We test the hypothesis that gold represents a safe haven against stocks of major emerging and developing countries. A descriptive and econometric analysis for a sample spanning a 30 year period from 1979 to 2009 sho...

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Bibliographic Details
Published in:Journal of banking & finance 2010-08, Vol.34 (8), p.1886-1898
Main Authors: Baur, Dirk G., McDermott, Thomas K.
Format: Article
Language:English
Subjects:
Brazil
Capital market
China
Developing countries
Econometrics
Financial economics
Financial institutions
Financial markets
Financial systems
Gold
Gold markets
Gold Safe haven Financial markets Uncertainty
Hedging
India
International finance
LDCs
Manycountries
Precious metals
Russian Federation
Safe haven
Securities markets
Stock prices
Studies
Uncertainty
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Summary:The aim of this paper is to examine the role of gold in the global financial system. We test the hypothesis that gold represents a safe haven against stocks of major emerging and developing countries. A descriptive and econometric analysis for a sample spanning a 30 year period from 1979 to 2009 shows that gold is both a hedge and a safe haven for major European stock markets and the US but not for Australia, Canada, Japan and large emerging markets such as the BRIC countries. We also distinguish between a weak and strong form of the safe haven and argue that gold may act as a stabilizing force for the financial system by reducing losses in the face of extreme negative market shocks. Looking at specific crisis periods, we find that gold was a strong safe haven for most developed markets during the peak of the recent financial crisis.
ISSN:0378-4266
1872-6372
DOI:10.1016/j.jbankfin.2009.12.008