Why is Gold a Safe Haven? (Presentation Slides)

Journal of Behavioral and Experimental Finance, Forthcoming

8 Pages Posted: 3 May 2016

See all articles by Dirk G. Baur

Dirk G. Baur

University of Western Australia - Business School; Financial Research Network (FIRN)

Thomas K. J. McDermott

SEMRU, Whitaker Institute, NUI Galway; London School of Economics & Political Science (LSE) - Grantham Research Institute on Climate Change and the Environment

Date Written: May 1, 2016

Abstract

Gold is a prominent safe haven asset but risky compared to other safe haven assets such as US government bonds. We identify unique features of gold that explain why investors under stress buy the riskier alternative gold. We argue that the decision to buy gold is rooted in behavioral biases associated with gold’s history as a currency, a store of value and a safe haven. The empirical analysis shows that gold was a particularly strong safe haven in the aftermath of September 11, 2001 and the Lehman bankruptcy in September 2008. The Global Financial Crisis also exemplifies the role of the US dollar as a safe haven currency and how it can mask the safe haven effect of gold. Finally, we find that safe haven assets do not exacerbate crises via a negative feedback effect.

Keywords: safe haven; safe assets; gold; US government bonds; flight to quality; flight to gold; decision-making under stress; local thinking

JEL Classification: D03, D81, G01

Suggested Citation

Baur, Dirk G. and McDermott, Thomas K. J., Why is Gold a Safe Haven? (Presentation Slides) (May 1, 2016). Journal of Behavioral and Experimental Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2773395 or http://dx.doi.org/10.2139/ssrn.2773395

Dirk G. Baur (Contact Author)

University of Western Australia - Business School ( email )

School of Business
35 Stirling Highway
Crawley, Western Australia 6009
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Thomas K. J. McDermott

SEMRU, Whitaker Institute, NUI Galway ( email )

University Road
Galway, Co. Kildare
Ireland

HOME PAGE: http://https://thomaskjmcdermott.wordpress.com

London School of Economics & Political Science (LSE) - Grantham Research Institute on Climate Change and the Environment ( email )

Houghton Street
London, WC2A 2AE
Great Britain

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