Is Gold a Hedge or Safe Haven Asset during COVID–19 Crisis?
Md Akhtaruzzaman (Australian Catholic University), et al.
May 15, 2020
The COVID–19 pandemic has shaken the global financial markets. Our study examines the role of gold as a safe haven asset during the different phases of this COVID–19 crisis by utilizing an intraday dataset. The empirical findings show that dynamic conditional correlations (DCCs) between intraday gold and international equity returns (S&P500, Euro Stoxx 50, Nikkei 225, and China FTSE A50 indices) are negative during Phase I (December 31, 2019−March 16, 2020) of the COVID–19 pandemic, indicating that gold is a safe haven asset for these stock markets. However, gold has lost its property as a safe haven asset for these markets during Phase II (March 17−April 24, 2020). The optimal weights of gold in the portfolios of S&P500, Euro Stoxx 50, Nikkei 225 and WTI crude oil has significantly increased during Phase II, suggesting that investors have increased the optimal weights of gold as ‘flight-to-safety assets’ during the crisis period. The results also show that hedging costs have significantly increased during Phase II. The hedging effectiveness (HE) index shows that the hedge is effective for portfolios containing gold and major financial assets. Our results are robust to alternative specifications of the DCC-GARCH model.

A Safe Haven Index
Dirk G. Baur (U. of Western Australia) and Thomas Dimpfl (U. of Tuebingen)
July 2, 2020
Gold, U.S. and German government bonds, the Swiss franc and the U.S. dollar and, more recently, Bitcoin are frequently labeled safe havens. This paper proposes a safe haven index (SHI) to benchmark safe haven assets and demonstrates that the SHI exhibits positive returns and increased volatility in crisis periods. Gold has a high safe haven beta and high risk, whereas 10-year U.S. and German government bonds have smaller betas and lower risk. In contrast, Bitcoin has a high alpha and an insignificant beta making it a “lucky safe haven”. Finally, a specific analysis of the COVID-19 shock in March 2020 reveals that the safe haven index turned briefly negative, contrasting previous crises over the last 40 years.

Searching for Safe-haven Assets During the COVID-19 Pandemic
Qiang Ji (Chinese Academy of Sciences), et al.
April 25, 2020
The ongoing COVID-19 pandemic has shaken the global financial system and caused great turmoil. Facing unprecedented risks in the markets, people have increasing needs to find a safe haven for their investments. Given that the nature of this crisis is a combination of multiple problems, it is substantially different from all other financial crises known to us. It is therefore urgent to re-evaluate the safe-haven role of some traditional asset types, namely, gold, cryptocurrency, foreign exchange and commodities. This paper introduces a sequential monitoring procedure to detect changes in the left-quantiles of asset returns, and to assess whether a tail change in the equity index can be offset by introducing a safe-haven asset into a simple mean-variance portfolio. The sample studied covers a training period between August-December 2019 and a testing period of December 2019-March 2020. Furthermore, we calculate the cross-quantilogram between pair-wise asset returns and compare their directional predictability on left-quantiles in both normal market conditions and the COVID-19 period. The main results show that the role of safe haven becomes less effective for most of the assets considered in this paper, while gold and soybean commodity futures remain robust as safe-haven assets during this pandemic.

When to Own Stocks and When to Own Gold
Timothy Peterson (Cane Island Alternative Advisors)
January 13, 2018
We show that dynamic investment portfolio asset allocation based on secular market cycles outperforms a buy-and-hold portfolio of equities and outperforms a buy-and-hold portfolio of gold over long periods. An objective definition of secular market enables identification of an appropriate ex-ante risk-on or risk-off posture for a portfolio. We construct an objective measure which we term a “secular market indicator (SMI)” using a modified Shiller Cyclically Adjusted Price-Earnings (CAPE) ratio with gold as a reference point. This SMI has slightly greater predictive power than Shiller’s CAPE Ratio in that it provides a consistent threshold signal for secular macroeconomic reversals. Finally, we use the SMI to create a simple decision rule to shift asset allocation between equity and gold depending on the secular market cycle. The resulting portfolio outperforms an all-equity portfolio and an all-gold portfolio over holding periods of 10+ years about 70% of the time, and produces superior risk-adjusted performance about 80% of the time.

A Vector Error Correction Model Analysis of Gold Prices – How Will COVID-19 Impact the Price of Gold?
Zaeem-Al Ehsan (University of Dhaka)
July 7, 2020
Gold has proven to be a sturdy investment to weather the storm of economic demise time and time again, however there lies no consensus on a model to capture the movement of gold prices. This study attempted to predict the implications of the recession brought about by the COVID-19 pandemic on gold prices. Hence, this study made an attempt to analyze the correlations of the price of gold with the price of crude oil, USD index and real world GDP per capita using annual data pertaining to the sample interval range from 1973 to 2015. A VEC model of gold prices was used to uncover that changes in real GDP per capita, crude oil prices and the USD index had no long run equilibrium relationship with the price of gold. The study also found through a Granger Causality test that the aforementioned variables do have a short run impact on the prices of gold. The paper concludes that the COVID-19 pandemic will not have a significant impact on gold prices in the long run.

A Study on Gold Price Performance Relation Among the Countries of U.S., India, Canada and Australia
Dr. Rajalakshmi.K (Shri Sss Jain College for Women)
January 2020
The Study of different forms of Investment plays a major role in economic Investments. Among the economic Investments Gold also plays a major role in certain countries. Gold is one of the precious yellow metals in the world and one of the major investment options by many of the countries. Many of the Countries prefer various sources of Investment opportunities, but the countries like India prefer Gold as best source of investments compared to the other avenues. Like the up trends and down trends in the stock market Gold markets also have its own performance of price hike or down or standard. Moreover there is always preference for Gold as an option to invest by Indian investors and also due to the essential need for certain events. The study depends on the secondary data for sixteen years 2003 to 2018 of percentage of performance of Gold prices among the countries like America, Australia, Canada and India. The study is done on casual research basis to know is there any relation between the said countries with the performance of price rate of Gold. It is found that there is statistically significant relation between US and India also among Australia and India in Gold price fluctuations.

Does Gold Act as a Hedge Against Exchange Rates?
Xiaomeng Wei (Renmin University of China)
June 15, 2020
This paper investigates the roles of hedging and safe haven of gold against exchange rates using data from six major markets. We find that exchange rate Granger-causes the return on gold in both mean and variance level except for some extreme quantiles. The quantile-on-quantile regression results imply that gold can act as a hedge for exchange rates in France, India, Japan, the UK and the USA. This safe haven role presents a dynamic pattern depending on specific extreme quantiles. In China, however, there are no significant hedging opportunities.

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