Measuring the response of gold prices to uncertainty: An analysis beyond the mean

Jamal Bouoiyour (), Refk Selmi and Mark Wohar

Economic Modelling, 2018, vol. 75, issue C, 105-116

Abstract: This paper provides an innovative perspective on the role of gold as a hedge and safe haven. We use a quantile-on-quantile regression approach to capture the dependence structure between gold returns and changes in uncertainty under different gold market conditions, while considering the nuances of uncertainty levels. To capture the core uncertainty effects on gold returns, a dynamic factor model is used. This technique allows summarizing the impact of six different indexes (namely economic, macroeconomic, microeconomic, monetary policy, financial and political uncertainties) within one aggregate measure of uncertainty. In doing so, we show that the gold's role as a hedge and safe haven cannot be assumed to hold at all times. This ability seems to be sensitive to the gold's various market states (bearish, normal or bullish) and to whether the uncertainty is low, middle or high. Interestingly, we find a positive and strong relationship between gold returns and the uncertainty composite indicator when the uncertainty attains its highest level and under normal gold market scenario. This suggests that holding a diversified portfolio composed of gold could help protecting against exposure to uncertain risks.

Keywords: Gold; Uncertainty; Hedge; Safe haven; Quantile-on-quantile regression (search for similar items in EconPapers)
JEL-codes: C58 G11 G15 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (78)

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Working Paper: Measuring the response of gold prices to uncertainty: An analysis beyond the mean (2018)
Working Paper: Measuring the response of gold prices to uncertainty: An analysis beyond the mean (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:75:y:2018:i:c:p:105-116

DOI: 10.1016/j.econmod.2018.06.010

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