The Golden Hedge: From Global Financial Crisis to Global Pandemic

Abstract This paper examines whether gold, and gold mining stocks, were an effective hedge during the 2020 global pandemic and 2008–2009 global financial crisis. Prior research suggests that gold’s hedging value is most evident during crisis periods, but none has compared the 2008–2009 and 2020 episodes directly. Dynamic conditional correlations and hedge ratios are estimated to determine the impact of rising market volatility on the hedging properties of physical gold and gold mining stocks. The results suggest that gold provided strong hedging value during the global financial crisis but did not consistently exhibit this property in 2020. There was less scope for hedging against losses in 2020 because the market recovered so quickly from the March 2020 lows. This contrasts with the extended stock market weakness following the onset of the global financial crisis.