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Is Gold a Safe Haven? It Depends on the Country

Is Gold a Safe Haven? It Depends on the Country

Posted March 27, 2023 at 9:30 am


If you’re a regular reader of our blogs (and we hope you are!), you would not miss that we like to touch macro-economic subjects. One of that never-fading topics is the role of gold as a crisis hedge. The probably most known commodity is a popular choice for a portion of the total portfolio, from small investors to central banks, for various reasons (be it diversification or hedging). So let’s not further delay it, and today we ask: Is gold really a safe haven?

Often, when stock markets are in turmoil, investors seek so-called safe havens that at least hold the value of their wealth when macroeconomic conditions are worsening. The held consensus view is that gold acts as a hedge against geopolitical stress and falling USD. But is that really well-suited for everyone? What about investors that have other investments in various currencies? As we see later, the utility of gold really depends mainly on the investor’s main, primary, or base currency.

An older but widely accepted paper from Dirk G. Baur (2021) presents his research on 68 stock markets and gold in local currencies and US dollars. The good news is that for investors in more than 60 markets and countries investing in their local currencies, gold really can (in addition to the diversification effect) effectively act as a currency hedge. In addition, if you switch a portion of your portfolio from local currency to a gold-denominated asset, you will likely catch a mid-time-lasting bullish trend. The results for US dollar investors are not as statically significant. Furthermore, the safe-haven effect is less lasting (under ten days).

Another interesting point is that the heaven-safe effect of gold in local equity markets is enhanced by large outflows from them that are often directed into gold investment vehicles, causing larger drawdowns in stock markets and the weakening of local currencies. Would you like to find out how your local market particularly correlates with gold and its relationships? Look at sweet and easy-digestible tables in the paper’s appendix. Interested in different approaches on utilizing when best to invest in gold? Do not miss checking our related strategies in Screener.

Authors: Dirk G. Baur

Title: Is Gold a Safe Haven in all Currencies?


Originally posted on Quantpedia. Visit their blog to read the full article.

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