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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

    as
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    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Ten Things Every Economist Should Know about the Gold Standard
      by George Selgin in Free Banking on 2015-05-28 07:42:24
    2. Ten Things Every Economist Should Know about the Gold Standard
      by George Selgin in Free Banking on 2015-06-04 19:44:07
    3. 10 Things Every Economist Should Know About The Gold Standard
      by Tyler Durden in Zero Hedge on 2015-08-20 07:45:00

    Citations

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    Cited by:

    1. Hoang, Thi Hong Van & Lahiani, Amine & Heller, David, 2016. "Is gold a hedge against inflation? New evidence from a nonlinear ARDL approach," Economic Modelling, Elsevier, vol. 54(C), pages 54-66.
    2. Śmiech, Sławomir & Papież, Monika, 2017. "In search of hedges and safe havens: Revisiting the relations between gold and oil in the rolling regression framework," Finance Research Letters, Elsevier, vol. 20(C), pages 238-244.
    3. O'Connor, Fergal A. & Lucey, Brian M. & Batten, Jonathan A. & Baur, Dirk G., 2015. "The financial economics of gold — A survey," International Review of Financial Analysis, Elsevier, vol. 41(C), pages 186-205.
    4. Dey Shubhasis & Sampath Aravind, 2017. "Dynamic Linkages between Gold and Equity Prices: Evidence from Indian Financial Services and Information Technology Companies," Working papers 251, Indian Institute of Management Kozhikode.
    5. repec:eee:finana:v:57:y:2018:i:c:p:13-22 is not listed on IDEAS
    6. Narayan, Paresh Kumar & Sharma, Susan Sunila, 2016. "Intraday return predictability, portfolio maximisation, and hedging," Emerging Markets Review, Elsevier, vol. 28(C), pages 105-116.
    7. Reboredo, Juan C. & Ugolini, Andrea, 2015. "Downside/upside price spillovers between precious metals: A vine copula approach," The North American Journal of Economics and Finance, Elsevier, vol. 34(C), pages 84-102.
    8. repec:eee:quaeco:v:65:y:2017:i:c:p:276-284 is not listed on IDEAS
    9. Mensi, Walid & Hammoudeh, Shawkat & Reboredo, Juan C. & Nguyen, Duc Khuong, 2015. "Are Sharia stocks, gold and U.S. Treasury hedges and/or safe havens for the oil-based GCC markets?," Emerging Markets Review, Elsevier, vol. 24(C), pages 101-121.
    10. Gülseven, Osman & Ekici, Özgün, 2016. "The Turkish appetite for gold: An Islamic explanation," Resources Policy, Elsevier, vol. 48(C), pages 41-49.
    11. Ghazali, Mohd Fahmi & Lean, Hooi Hooi & Bahari, Zakaria, 2015. "Sharia compliant gold investment in Malaysia: Hedge or safe haven?," Pacific-Basin Finance Journal, Elsevier, vol. 34(C), pages 192-204.
    12. Beckmann, Joscha & Czudaj, Robert & Pilbeam, Keith, 2015. "Causality and volatility patterns between gold prices and exchange rates," The North American Journal of Economics and Finance, Elsevier, vol. 34(C), pages 292-300.
    13. Gupta, Rangan & Majumdar, Anandamayee & Pierdzioch, Christian & Wohar, Mark E., 2017. "Do terror attacks predict gold returns? Evidence from a quantile-predictive-regression approach," The Quarterly Review of Economics and Finance, Elsevier, vol. 65(C), pages 276-284.
    14. Shubhasis Dey, 2016. "Historical Events and the Gold Price," Working papers 198, Indian Institute of Management Kozhikode.

    More about this item

    Keywords

    Gold; Exchange rates; Hedge; Safe haven;

    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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