Does Gold Act as a Hedge Against Exchange Rates?

Abstract

This paper investigates the roles of hedging and safe haven of gold against exchange rates using data from six major markets. We find that exchange rate Granger-causes the return on gold in both mean and variance level except for some extreme quantiles. The quantile-on-quantile regression results imply that gold can act as a hedge for exchange rates in France, India, Japan, the UK and the USA. This safe haven role presents a dynamic pattern depending on specific extreme quantiles. In China, however, there are no significant hedging opportunities.

Keywords: gold, exchange rate, hedge, causality-in-quantiles, quantile-on-quantile regression

JEL Classification: C22; G15