Gold as Hedge or Safe Haven in Global Equity Markets

Recently, it has become very important for equity investors to manage their investment risk. Since the global financial crisis of 2008, it has frequently been observed that the price of gold moves in the opposite direction from that of equity in many countries. In this context, questions about whether gold can be a hedge or a safe haven for equity has attracted investors’ attention. This paper has examined the hypothesis that gold is a hedge or safe-haven asset against the risk of equity markets. Using a model of dynamic conditional correlations covering 15 years of weekly data for 11 equity markets, our empirical results yielded two findings. (1) Data from most countries show that the average of conditional correlation coefficients between gold and equity returns is negative, implying a hedge role in equity markets. (2) Gold has been an effective safe haven in extreme bearish equity conditions including the 2008 Global financial crisis. These findings indicate that gold is a useful investment to hedge the stock portfolio risk and to strengthen the benefits of the diversification of portfolios from the perspective of equity risk management.