Gold as a financial instrument

Pedro Gomis-Porqueras, Shuping Shi and David Tan

Journal of Commodity Markets, 2022, vol. 27, issue C

Abstract: This paper explores the effectiveness of gold as a hedging and safe haven instrument for a variety of market risks. Rather than confining the analysis to specific countries, we treat gold as a global asset and apply the novel Phillips, Shi and Yu (2015a) and Phillips, Shi and Yu (2015b) methodology to identify extreme price movements. This method accounts for both the level and speed of changes in price dynamics that better characterises periods of abnormally high risks. We uncover safe haven properties for the European sovereign debt crisis, stock market crash, and oil inflationary pressures. We also show that gold exhibits hedging properties when investors are faced with currency, European sovereign debt, stock market, and oil inflation risks. Finally, we demonstrate that gold was a weak safe haven for investors during the 2020 Covid-19 crisis, and highlight the importance of accounting for speed and price levels in the identification of abnormal risk periods.

Keywords: Gold; Hedge; Safe haven; Crisis identification; Sovereign debt; Equity markets; Oil inflation; Covid-19 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (4)

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Working Paper: Gold as a Financial Instrument (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jocoma:v:27:y:2022:i:c:s2405851321000519

DOI: 10.1016/j.jcomm.2021.100218

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