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Citation

Faraj H, McMillan D & Al-Sabah M (2025) The diminishing lustre: Gold's market volatility and the fading safe haven effect. Global Finance Journal, 67, Art. No.: 101145. https://doi.org/10.1016/j.gfj.2025.101145

Abstract
For decades, gold has been considered as the most safe haven of assets in times of markets turmoil. However, this role has appears to have waned in recent years. This study aims to assess gold market behaviour over the past 37 years and examine the role of gold (and other precious metals) during periods of equity and bond market stress. Notably, we investigate whether gold lost its appeal as a safe haven asset due to its own market instability. Change point analysis, rolling mean, GARCH and DCC-GARCH approaches demonstrate that the gold market exhibits two distinct periods characterised by differing market movements, with a stable era followed by an unstable (highly volatile) era. Gold plays an insignificant role during the latter unstable period. Moreover, it exhibits a positive correlation in most high volatility periods with the S&P 500, again, especially during this latter period. This implies that gold is losing (or lost) its safe haven role during market stress and as the gold market encounters higher volatility periods, we anticipate a more positive correlation with the stock market in times of extreme stock market conditions. The outcomes challenge the prevailing definition of a gold safe haven, question the assumption of the stabilising role gold may offer to mitigate losses, and have important implications for investors seeking shelter in times of market stress.

Keywords
Gold; Safe haven; Volatility; ICSS; Changing point; Rolling mean; GARCH; DCC-GARCH

Journal
Global Finance Journal: Volume 67

• Published Version