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Gold as a financial instrument

Author

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  • Gomis-Porqueras, Pedro
  • Shi, Shuping
  • Tan, David

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.

Suggested Citation

  • Gomis-Porqueras, Pedro & Shi, Shuping & Tan, David, 2022. "Gold as a financial instrument," Journal of Commodity Markets, Elsevier, vol. 27(C).
    • Handle: RePEc:eee:jocoma:v:27:y:2022:i:c:s2405851321000519
    DOI: 10.1016/j.jcomm.2021.100218
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    2. Vieira, Duarte Saldanha & Carvalho, Paulo Viegas de & Curto, José Dias & Laureano, Luís, 2023. "Gold's hedging and safe haven properties for European stock and bond markets," Resources Policy, Elsevier, vol. 85(PA).
    3. Paweł Kowalewski & Dominik Skopiec, 2023. "Wzrost znaczenia złota w rezerwach dewizowych banków centralnych gospodarek wschodzących," Bank i Kredyt, Narodowy Bank Polski, vol. 54(3), pages 259-284.
    4. Paweł Kowalewski & Dominik A. Skopiec, 2024. "Price processes in the global gold market," Bank i Kredyt, Narodowy Bank Polski, vol. 55(4), pages 381-424, January.

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    More about this item

    Keywords

    Gold; Hedge; Safe haven; Crisis identification; Sovereign debt; Equity markets; Oil inflation; Covid-19;
    All these keywords.

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G0 - Financial Economics - - General

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