Does Gold Offer a Better Protection Against Sovereign Debt Crisis than Other Metals?
43 Pages Posted: 8 Nov 2013 Last revised: 15 Aug 2014
Date Written: November 26, 2013
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.
Keywords: Gold; Precious Metals; Industrial Metals; Sovereign Bonds; Hedge; Safe Haven
JEL Classification: G10; G11; G14
Suggested Citation: Suggested Citation