CAN GOLD SERVE AS A HEDGE AGAINST UNCERTAINTY? : A study on the gold price dynamics and its role as a safe haven asset

Abstract: Gold’s ability to retain its real value in times of uncertainty and financial turmoil has long been of interest to investors and central banks worldwide. Gold has historically been used as a monetary means due to its store of value and in the early days, gold coins were used as a currency. In the 1940s, the Bretton Woods agreement emerged, where countries’ currencies were fixed to a specific amount of gold. The system was diminished in the 1970s, but gold still remains as a pertinent part of the monetary system. The precious metal has succeeded to retain its attractiveness and is often portrayed as a safe haven asset as well as an indicator of wealth. This paper analyzes the gold price dynamics and its ability to act as a safe haven in times of uncertainty. Furthermore, it investigates if gold can act as a hedge against the Swedish stock market, using a correlation test with the OMXS30 index. An OLS-regression has been run on the empirical non-linear model presented in this paper. The results of the regression showed a positive relationship between gold price and crude oil price, whereas GDP, the U.S. treasury and the U.S. stock market showed to have a negative relationship with the price of gold. A correlation test including dummy variables of the eurozone debt crisis, the financial crisis and the covid-19 pandemic indicated a positive relationship between gold and all the variables, hence concluding that gold is a safe haven asset. A correlation test has also been used to evaluate the association between gold price and OMXS30 and a weak, negative relationship was found.