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

Listed author(s):
  • Reboredo, Juan C.
  • Rivera-Castro, Miguel A.

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.

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File URL: http://www.sciencedirect.com/science/article/pii/S0264999314000820
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Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 39 (2014)
Issue (Month): C ()
Pages: 168-173

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Handle: RePEc:eee:ecmode:v:39:y:2014:i:c:p:168-173
DOI: 10.1016/j.econmod.2014.02.038
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30411

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  1. Blose, Laurence E., 2010. "Gold prices, cost of carry, and expected inflation," Journal of Economics and Business, Elsevier, vol. 62(1), pages 35-47, January.
  2. Dirk G. Baur & Brian M. Lucey, 2010. "Is Gold a Hedge or a Safe Haven? An Analysis of Stocks, Bonds and Gold," The Financial Review, Eastern Finance Association, vol. 45(2), pages 217-229, 05.
  3. Reboredo, Juan C., 2013. "Is gold a safe haven or a hedge for the US dollar? Implications for risk management," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 2665-2676.
  4. Paolo Zagaglia & Massimiliano Marzo, 2013. "Gold and the U.S. dollar: tales from the turmoil," Quantitative Finance, Taylor & Francis Journals, vol. 13(4), pages 571-582, March.
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  6. Angelo Ranaldo & Paul Söderlind, 2010. "Safe Haven Currencies," Review of Finance, European Finance Association, vol. 14(3), pages 385-407.
  7. Sjaastad, Larry A. & Scacciavillani, Fabio, 1996. "The price of gold and the exchange rate," Journal of International Money and Finance, Elsevier, vol. 15(6), pages 879-897, December.
  8. Baur, Dirk G. & McDermott, Thomas K., 2010. "Is gold a safe haven? International evidence," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1886-1898, August.
  9. Ciner, Cetin & Gurdgiev, Constantin & Lucey, Brian M., 2013. "Hedges and safe havens: An examination of stocks, bonds, gold, oil and exchange rates," International Review of Financial Analysis, Elsevier, vol. 29(C), pages 202-211.
  10. Takashi Miyazaki & Yuki Toyoshima & Shigeyuki Hamori, 2012. "Exploring the dynamic interdependence between gold and other financial markets," Economics Bulletin, AccessEcon, vol. 32(1), pages 37-50.
  11. Andrew C. Worthington & Mosayeb Pahlavani, 2007. "Gold investment as an inflationary hedge: cointegration evidence with allowance for endogenous structural breaks," Applied Financial Economics Letters, Taylor and Francis Journals, vol. 3(4), pages 259-262.
  12. Wang, Kuan-Min & Lee, Yuan-Ming & Thi, Thanh-Binh Nguyen, 2011. "Time and place where gold acts as an inflation hedge: An application of long-run and short-run threshold model," Economic Modelling, Elsevier, vol. 28(3), pages 806-819, May.
  13. Capie, Forrest & Mills, Terence C. & Wood, Geoffrey, 2005. "Gold as a hedge against the dollar," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 15(4), pages 343-352, October.
  14. Mark, Joy, 2011. "Gold and the US dollar: Hedge or haven?," Finance Research Letters, Elsevier, vol. 8(3), pages 120-131, September.
  15. Reboredo, Juan C., 2013. "Is gold a hedge or safe haven against oil price movements?," Resources Policy, Elsevier, vol. 38(2), pages 130-137.
  16. Christoffersen, Peter F, 1998. "Evaluating Interval Forecasts," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 841-862, November.
  17. Wang, Kuan-Min & Lee, Yuan-Ming, 2011. "The yen for gold," Resources Policy, Elsevier, vol. 36(1), pages 39-48, March.
  18. Pukthuanthong, Kuntara & Roll, Richard, 2011. "Gold and the Dollar (and the Euro, Pound, and Yen)," Journal of Banking & Finance, Elsevier, vol. 35(8), pages 2070-2083, August.
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