Abstract:
This research sought to understand the role of gold as a safe haven against economic policy uncertainty in the United States, Europe, China and Japan. In 2008 the world stared into the abyss of credit fuelled economic ruin. The outcome of that crisis was further financial engineering on a massive scale. How long before the solutions to the previous disaster become the next disaster? In the face of this, does gold still play the role as a safe haven against EPU? Extant literature has used the nascent economic policy uncertainty index (EPUI) to model the effect of United States (US) and European EPU on gold priced in US dollars, using multivariate linear regression (Jones and Sackley, 2016). The effect of EPU in China, Europe and Japan has not been tested, nor has a more advanced approach than linear regression been applied. This research set out to examine the role of gold as a safe haven in major economies: US, China, Europe and Japan. It did so expanding the multivariate linear regression approach of previous work with additional variables, and by estimating models using the ARIMAX methodology. The study found evidence that gold was used as a safe haven against EPU in Europe, but not in the US or Japan. Further, evidence suggested that the Chinese economy dominates the gold price. The findings of this research have implications for gold mining companies, and investors and speculators, through the contribution to the understanding of drivers of the gold price. Moreover, this study highlighted the need for further research into the supply and demand dynamics of gold in China.
