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

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