Can Gold Be Used As a Hedge or Safe Haven for Equity and Exchange Rate?

Abstract

In this paper we investigate the ability of gold as a hedge and safe haven for equity and exchange rates of these countries during extreme market movement for seven Asian countries which are China, India, Indonesia, Japan, Korea, Malaysia and Thailand. Hedge is defined as negative relationship between two assets during normal condition while safe haven is defined as negative relationship between two assets during extreme price movement. This study covered from 4th March 1994 until 28th February 2014 for gold, equity and exchange rates. The results from quantile regression models show that gold is not a hedge for equity but a safe haven for China, India and Malaysia daily’s equity returns. For weekly’s equity returns, gold only act as safe haven for Thailand. For the daily’s exchange rates returns, gold act as a hedge for India, Japan and Malaysia exchange rates. Moreover gold act as a safe haven for Indonesia, Japan, Malaysia and Thailand in daily’s exchange rates returns while for Japan and Malaysia in weekly’s exchange rates return