Is Gold a Hedge or a Safe Haven? An Analysis of Stocks, Bonds and Gold

Jul 16, 2026

The study investigates whether gold functions as a hedge or a safe haven by examining constant and time-varying relationships between U.S., U.K., and German stock and bond returns and gold returns. Gold shows hedge properties against stocks on average and safe-haven behavior in extreme stock market conditions. Portfolio evidence indicates the safe-haven effect is brief and dissipates as market stress subsides, limiting long-term usefulness for crisis protection.

LanguageEnglish

CategoryResearch & Report

FormatPDF

Pages13

Reading Time33 min

Introduction

Definitions

Hedge

The Financial Review 45 (2010) 217–229 Is Gold a Hedge or a Safe Haven? An Analysis of Stocks, Bonds and Gold Dirk G. Baur ∗ Dublin City University, Business School Brian M. Lucey School of Business and Institute for International Integration Studies, Trinity College Dublin Abstract Is gold a hedge, defined as a security that is uncorrelated with stocks or bonds on average, or is it a safe haven, defined as a security that is uncorrelated with stocks and bonds in a market crash? We study constant and time-varying relations between U.S., U.K. and German stock and bond returns and gold returns to investigate gold as a hedge and a safe haven. We find that gold is a hedge against stocks on average and a safe haven in extreme stock market conditions. A portfolio analysis further shows that the safe haven property is short-lived. Keywords: safe haven, hedge, gold, stock-bond correlation, flight-to-quality JEL Classifications: G10, G11, G14, G15 1. Introduction Financial markets and the variety of financial instruments have grown steadily in both volume and value in recent decades. This growth has raised the risks of the financial system and potentially established the need for a safe haven for investors. While gold ∗ Corresponding author: Dublin City University-Business School & University of Technology, Sydney-School of Finance & Economics, PO Box 123, Broadway NSW 2007, Australia; Phone:+61 2 9514 7777; Fax: +61 2 9514 7722; E-mail: [dirk.baur@uts.edu.au](dirk.baur@uts.edu.au). 2010, The Eastern Finance Association 217 218 D. G. Baur and B. M. Lucey/The Financial Review 45 (2010) 217–229 has often been associated with the existence of a safe haven, we are not aware of any study actually testing this hypothesis. After a definition and clear distinction of a safe haven, a hedge and a diversifier, it is tested whether gold is a (safe) haven asset. Gold is chosen as a candidate since anecdotal evidence and the financial media suggest that gold serves as a safe haven in financial markets. While there is no theoretical model which explains why gold is usually referred to as a safe haven asset, one major explanation could be that it was among the first forms of money and was traditionally used as an inflation hedge. Furthermore, gold is said to be uncorrelated with other types of assets, which is an important feature in an era of globalization in which correlations increased dramatically among most asset types. These components might have contributed significantly to the role of gold. The econometric approach is based on a regression model in which gold returns are regressed on stock and bond returns and two interaction terms that test whether gold indeed serves as a safe haven if stock or bond markets fall or exhibit extreme negative returns. The empirical analysis focuses on three large financial markets (the United States, the United Kingdom and Germany) with different currencies (U.S. dollar, U.K. pound and the Euro) to examine the differences and similarities of the role of gold in these markets. Daily returns are used to analyze whether investors react to extreme negative shocks relatively fast and use gold as a safe haven asset. Finally, a portfolio analysis evaluates the evolution of all assets in periods in which gold potentially serves as a haven asset. Such an analysis illustrates how profitable it is for investors to buy and sell gold in periods of stock market turmoil. Our empirical analysis shows that gold is a safe haven for stocks in the United States, in the United Kingdom and in Germany. Gold is also a hedge for stocks in the United States and the United Kingdom. However, gold is nowhere a safe haven for bonds; nor is it a bond hedge in the United States or United Kingdom. Furthermore, gold is not a safe haven for stocks at all times but only after extreme negative stock market shocks. In addition, the safe haven property is short-lived. In other words, gold is a safe haven when it i

FAQs

How does the paper define a hedge versus a safe haven?

A hedge is defined as an asset that is uncorrelated or negatively correlated with another asset or portfolio on average. A safe haven refers to an asset that becomes uncorrelated with stocks and bonds specifically during market crashes or extreme stress conditions.

What empirical markets and return data does the analysis use?

The empirical analysis focuses on the United States, the United Kingdom, and Germany, using daily returns to study how gold responds to extreme negative shocks and to evaluate crisis-period performance via portfolio analysis.

What are the main findings about gold’s behavior for stocks and bonds?

Gold acts as a safe haven for stocks in the U.S., U.K., and Germany and as a hedge for stocks in the U.S. and U.K. However, it is not a safe haven for bonds, and its safe-haven property is short-lived, emerging mainly after extreme negative stock market shocks.

Jul 16, 2026

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