Gold as a Financial Instrument

24 Pages Posted: 21 Sep 2020

See all articles by Pedro Gomis‐Porqueras

Pedro Gomis‐Porqueras

Deakin University

Shuping Shi

Department of Economics, Macquarie University

David Tan

University of Wollongong

Date Written: September 15, 2020

Abstract

In this paper, we explore 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,b) 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 find that gold is a strong safe haven for stock, European sovereign, and oil inflation market risks. We also show that gold is a strong hedge to inflationary and currency risks. We demonstrate that gold had exhibited safe haven properties during the 2020 Covid-19 crisis, and highlight the importance of considering explosive behaviour in identifying periods of risk.

Keywords: Gold, Hedge, Safe Haven, Sovereign Debt, Equity Markets

Suggested Citation

Gomis‐Porqueras, Pedro and Shi, Shuping and Tan, David, Gold as a Financial Instrument (September 15, 2020). Macquarie Business School Research Paper , Available at SSRN: https://ssrn.com/abstract=3693475 or http://dx.doi.org/10.2139/ssrn.3693475

Pedro Gomis‐Porqueras

Deakin University

Shuping Shi (Contact Author)

Department of Economics, Macquarie University ( email )

New South Wales 2109
Australia

David Tan

University of Wollongong ( email )

Northfields Avenue
Wollongong, New South Wales 2522
Australia

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