Do volatility indices diminish gold's appeal as a safe haven to investors before and during the COVID-19 pandemic?

Abstract

This study addresses the research question of whether volatility indices of different asset classes reduce gold's appeal as a safe-haven asset before and during the COVID-19 pandemic. We use daily data for seven volatility indices and gold prices and apply the suitable nonlinear autoregressive distributed lag method to analyze the data. Our results indicate that during COVID-19, only the negative Eurocurrency volatility has diminished gold prices in the long term, whereas in the short term, the positive gold, silver, emerging market, and (lagged) financial market volatilities have diminished gold prices. During the pre-COVID-19 normal period, volatilities in the financial, energy, gold, silver, and eurocurrency markets improved gold prices, whereas in the short term, only lagged negative oil volatility diminished gold prices. A robustness test for the 2011–2015 pre-COVID-19 period reveals that this period is to an extent comparable to that of COVID-19. This study reveals no direct effects from emerging markets volatility on gold prices. Notwithstanding, a long memory in gold prices persists and uneven spillover effects exist. Finally, those volatilities predominantly increase gold prices under the normal economic conditions but decrease gold's appeal as a safe haven during crises in the comparable periods. We delineate the implications for investors.

Do oil, gold and metallic price volatilities prove gold as a safe haven during COVID-19 pandemic? Novel evidence from COVID-19 data

“…In addition to previous study, however they also proved that gold was a safe haven for three other important metals, namely platinum, palladium and silver in this study. Different metal prices volatility were taken into consideration by Tanin et al (2021) who estimated whether different assets volatilities could affect the role of gold as safe-haven, during and before the COVID 19 period. In the long run, adverse Eurocurrency volatility lowered gold prices, but positive silver, gold, emerging market, and financial market volatility reduced gold prices in the short term during COVID-19 period.…”

“…Alternatively, despite an increase of COVID-19 instances, the gold price was quickly rising Atri et al (2021) . Given all of these changes, we believe the COVID-19 outbreak has prompted global investors to look flight-to-safety by purchasing an asset that as a safe-haven asset Tanin et al (2021) .This phenomenon has caught the interest of investors and regulators, resulting in a surge in investment demand for certain commodities. As a result, it is indeed critical for portfolio managers, policymakers and investors to grasp the dynamic relationships between oil, gold, and silver prices ( Abubakari, 2021 ; Alawi, 2021 ; Alsahlawi, 2021 ; Dang et al, 2021 )…”

“…As a result, gold is seen as a safe-haven asset for all classes of investors especially in times of crisis as it helps them deal with economic and financial concerns. Agyei-Ampomah et al (2014) , Balcilar et al (2016) , Baur and McDermott (2010) , Baur and Lucey (2010) , Beckmann et al (2015) , Bilgin et al (2018) , Bouoiyour et al (2018) , Gürgün and Ünalmış (2014) , Reboredo (2013b) , Tanin et al (2021) are among who found that gold is a safe haven in times of financial crisis( Afandi et al, 2021 ; Alkhaldi, 2021 ; Brüntrup, 2021 ; Fok, Morgan, & Zee).…”

A Comparative Analysis on the Role and Market Linkages of Gold Backed Assets During COVID-19 Pandemic

“…Cheng et al (2020) reported that gold ETF is a strong safe haven against extreme fall in leading or lagged stock market and against exchange rate risk, similar to the characteristics of gold. Tanin et al (2021) examined the effect of the gold volatility index on gold prices. They found that positive volatility diminishes the price of gold during the Covid 19 period, whereas the impact is negative in the pre covid period.…”

Does oil impact gold during COVID-19 and three other recent crises?

“…Gold is perceived as a safe-haven asset 2 ( Beckmann et al, 2019 ; Harris and Shen, 2017 ; Ji et al, 2020 ; Mensi et al, 2017 ; Tanin et al, 2022 , Tanin et al, 2021b , Tanin et al, 2021c ), and investors buy gold as a hedging instrument ( Singhal et al, 2019 ). Further, gold helps investors diversify their portfolios, thereby minimizing macroeconomic risk ( Agyei-Ampomah et al, 2014 ; Balcilar et al, 2016 ; Baur and Lucey, 2010 ; Baur and McDermott, 2010 ; Beckmann et al, 2019 , Beckmann et al, 2015 ; Bilgin et al, 2018 ; Bouoiyour et al, 2018 ; Gürgün and Ünalmiş, 2014 ; Reboredo, 2013 ).…”