Abstract
This paper attempts to analyze the relation among gold prices and other macroeconomic and financial variables and addresses the question whether gold is a safe haven or a hedge for investors. The study investigates the relationship by using an econometric analysis for top gold exporter and importer countries, for a sample period of 11 years from 2000 to 2011. The results are twofold (i) return of silver, USD returns and change in the volatility index influences gold returns positively whereas, Swiss Franc and Canadian Dollar returns influence gold returns negatively regardless of presence of the 2008 crisis. (ii) In times of stress, our findings indicate that Swiss Franc, Norwegian Krone and Canadian Dollar function as haven whereas, on average, Swiss Franc, Canadian Dollar and 10 year US treasuries function as a hedge against gold but the results show no evidence for the US dollar.
Highlights
Gold is used as a standard measure up until the termination of Bretton Woods system by President Nixon in 1971 and as a precious metal for centuries throughout the world
Gold has almost tripled its value in US dollar terms and gold market train and its possible route became the center of attention for the majority of investors
This paper attempts to analyze the relation among gold prices and other macroeconomic and financial variables and addresses the question whether gold is a safe haven or a hedge for investors
Summary
Gold is used as a standard measure up until the termination of Bretton Woods system by President Nixon in 1971 and as a precious metal for centuries throughout the world. Turnaround for gold emerged with the global crisis of 2008 and it has gained value steadily at a period when precipitous falls in the stock markets were ubiquitous; interest rates were unattractive; the rumors about the European countries were rampant, increasing the eminent default risks. Despite the fact that gold prices are set internationally in foreign exchanges, countries like India and Turkey have significant cultural and psychological rationale in demanding gold. It may be necessary to incorporate financial data of both gold producer countries and gold consuming countries when gold prices are under study. This paper attempts to analyze the relation among gold prices and other macroeconomic and financial variables and addresses the question whether gold is a safe haven or a hedge for investors
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