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Does gold offer a better protection against losses in sovereign debt bonds than other metals?

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  • Agyei-Ampomah, Sam
  • Gounopoulos, Dimitrios
  • Mazouz, Khelifa

Abstract

It is a commonly held view that gold protects investors’ wealth in the event of negative economic conditions. In this study, we test whether other metals offer similar or better investment opportunities in periods of market turmoil. Using a sample of 13 sovereign bonds, we show that other precious metals, palladium in particular, offer investors greater compensation for their bond market losses than gold. We also find that industrial metals, especially copper, tend to outperform gold and other precious metals as hedging vehicles and safe haven assets against losses in sovereign bonds. However, the outcome of the hedge and safe haven properties is not always consistent across the different bonds. Finally, our analysis suggests that copper is the best performing metal in the period immediately after negative bond price shocks.

Suggested Citation

  • Agyei-Ampomah, Sam & Gounopoulos, Dimitrios & Mazouz, Khelifa, 2014. "Does gold offer a better protection against losses in sovereign debt bonds than other metals?," Journal of Banking & Finance, Elsevier, vol. 40(C), pages 507-521.
    • Handle: RePEc:eee:jbfina:v:40:y:2014:i:c:p:507-521
    DOI: 10.1016/j.jbankfin.2013.11.014
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    More about this item

    Keywords

    Gold; Precious metals; Industrial metals; Sovereign bonds; Hedge; Safe haven;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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