Global crises and gold as a safe haven : evidence from over seven and a half centuries of data

Abstract

Using annual data spanning the period of 1258–2018, we test the safe haven characteristic of gold in the wake of global crises. We find that, when we allow for regime-switching to capture nonlinearity and structural breaks, gold serves as a strong hedge against crises, especially during the bullish regime of the market, and in particular from the post-World War I period, as suggested by a time-varying model. In comparison, silver, however, does not seem to possess the safe haven property over the historical period of 1688–2018. Finally, we also find that global crises can accurately predict real gold returns over a long-span (1302-2018) out-of-sample period.