Investigation on Gold as a Medium of Hedge and Safe Haven in Malaysia: A Conceptual Study

Abstract

Gold had been used for a long time ago. It has been used as a medium of exchange, a store of value, as jewellery and also in sculpture. Meanwhile from the investment point of view, the potential of this precious metal as a hedging ability towards inflation had been recognized by other countries. Instead of being used as a hedge against inflation, gold become favorable asset during a crisis or economic turmoil. The favorable demand of gold during economic crises as compared with other investment instruments base on the perception and some evidence that gold is a safe haven. Due to the awareness of limited study on gold in this country, this paper tries to investigate the use of gold in Malaysia, whether it can be used as a hedge or a safe haven. Monthly gold price and stock price from April 2001 to April 2011 will be used for this study. In addition, we will use correlation and co-integration test for determine the usage of gold in Malaysia. It is hope that this study can give benefits in a way of practically to Malaysians investors and theoretical significant to other researchers.

Keywords: Gold, stock, hedge, safe haven, covariance, co-integration

JEL Classification: C50