Is gold still a shelter to fear?

Abstract

Finance theory argues that when financial markets drop, substitute investments, like gold, rise. Differently from previous works, in this study we have an initial attempt to link fear gauge index, commonly known as the VIX, to gold price in order to test whether gold price is motivated by the VIX or the vice versa. We employ a recent data from the U.S., and find that in stable periods there exists a bi-directional causality between fear and gold prices, whereas during non-stable periods (such as the current market crises) it seems that gold price returns drive the VIX changes. Both findings support the claim that gold still the shelter to fear.