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The GOLD market as a safe haven against the stock market uncertainty: Evidence from geopolitical risk

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  • Triki, Mohamed Bilel
  • Ben Maatoug, Abderrazek

Abstract

The main purpose of this paper is to examine the relationship between the US stock market and the gold price in the presence of geopolitical tensions and conflicts by introducing the recent index calculated by Caldara and Iacoviello in 2016, namely the Geopolitical Risk Index. This study highlights the benefit of using gold in the role of hedging and diversifying investment portfolios. We consider the monthly gold price, the S&P500 index, and the Geopolitical Risk Index from January 1985 to December 2018. We employ an MV-GARCH model and dynamic copula to investigate the return link and volatility spillover between these two markets. The empirical results indicate that the S&P500 correlates less with gold during peaceful periods (i.e., a low GPR index) and more during periods characterized by extreme political events. This indicates that gold is a good diversifier and safe haven, particularly during great tension. We also find that the role of gold in hedging against S&P500 volatility is considerable, especially during highly tense periods.

Suggested Citation

  • Triki, Mohamed Bilel & Ben Maatoug, Abderrazek, 2021. "The GOLD market as a safe haven against the stock market uncertainty: Evidence from geopolitical risk," Resources Policy, Elsevier, vol. 70(C).
    • Handle: RePEc:eee:jrpoli:v:70:y:2021:i:c:s030142072030903x
    DOI: 10.1016/j.resourpol.2020.101872
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    More about this item

    Keywords

    Geopolitical risk index; Gold price; Hedge ratio; Stock market; MV-GARCH; Dynamic copula;
    All these keywords.

    JEL classification:

    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War
    • G1 - Financial Economics - - General Financial Markets
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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