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Can gold hedge and preserve value when the US dollar depreciates?

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  • Reboredo, Juan C.
  • Rivera-Castro, Miguel A.

Abstract

This paper examines gold's hedging and value-preserving properties against fluctuations in the US dollar. We propose a likelihood ratio test that draws a distinction between hedging and safe-haven characteristics on the basis of the conditional dependence structure under different market conditions. Our evidence, based on an analysis of data for US dollar exchange rates with a broad set of currencies, indicates that gold can serve as a hedge against US dollar depreciation but is a weak safe haven against extreme US dollar movements. These results have implications for risk management and hedging strategies.

Suggested Citation

  • Reboredo, Juan C. & Rivera-Castro, Miguel A., 2014. "Can gold hedge and preserve value when the US dollar depreciates?," Economic Modelling, Elsevier, vol. 39(C), pages 168-173.
    • Handle: RePEc:eee:ecmode:v:39:y:2014:i:c:p:168-173
    DOI: 10.1016/j.econmod.2014.02.038
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    References listed on IDEAS

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    More about this item

    Keywords

    Gold; Exchange rates; Hedge; Safe haven;
    All these keywords.

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • F3 - International Economics - - International Finance
    • G1 - Financial Economics - - General Financial Markets

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