Revisiting the hedging and safe haven roles of gold: Evidence from quantile-on-quantile approach

This paper provides a comprehensive reassessment of gold’s role as a safe haven, hedge, and portfolio diversifier across the stock markets of G7 and E7 countries from January 1, 2000, to December 31, 2024. We employ an integrated empirical framework, combining quantile-on-quantile (QQ) regression, causality-in-quantiles testing, and the cross-quantilogram method. This approach allows us to capture asymmetric and heterogeneous dependencies across the joint distribution of gold and stock returns. The findings reveal that gold acts as a safe haven during market downturns in most G7 countries, particularly where gold comprises a large share of official reserves. In contrast, gold typically serves as a diversifier in E7 countries. However, under specific asymmetric market conditions, gold exhibits hedging or safe-haven behavior in some E7 countries, such as Turkey, India, and Brazil. The results also highlight the role of gold reserve composition in enhancing gold’s safe-haven properties. In countries with substantial official gold holdings, gold demonstrates more robust safe-haven capabilities. The causality-in-quantiles analysis further confirms bidirectional and nonlinear predictive relationships across quantiles, while recursive and sub-sample QQ estimations indicate that the safe-haven function of gold is time-varying and evolves in response to systemic shocks. These findings provide valuable insights for both investors and policymakers by highlighting the varying effectiveness of gold as a risk management instrument across various markets and economic conditions, emphasizing the importance of tailored strategies in uncertain financial environments.