It was strong coverage for the U.S. UU. For China, gold was a weak hedge throughout the study period. The reason why gold tends to be resilient during stock market declines is that both are negatively correlated.
In other words, when one goes up, the other tends to go down. It's a difficult question to answer. Certainly, gold has held up better than the stock market, which is in a major bear market. Traditionally, stocks have performed poorly during periods of rapid inflation, as witnessed by the 1970s.
The average investor gains exposure to gold from gold mutual funds or gold exchange-traded funds (ETFs). Since financial leverage and volatility feedback cannot describe this effect, the results can be considered indicative (rather than definitive) of the presence of diversifier purchases and hedges. Therefore, this section contains a literature review that includes previous studies on the role of gold in portfolio diversification, gold as a hedge, and gold as a safe haven against stocks. As a conclusion, in India and the United States, investors can own gold to protect themselves against losses in the stock market, in order to maintain their capital gains over time, as well as protection in times of serious stock market losses.
In the period April-September, the stock market recovered, even as the economy collapsed, because these cash benefits increased the liquidity of the economy. The common currency denomination of gold and the stock index leads to some commonality in the data, resulting in a greater degree of joint movement, thus reducing the safe haven ownership of gold. Therefore, including London-listed gold in a US portfolio reduces its risk and increases its profitability. The B1 parameter confirms whether gold is a diversifier or a hedging asset, while Br verifies whether gold is a safe haven asset during high stock market volatility.
The people of these two nations understand the value of gold, which is considered to have protected its owners from financial or monetary risks for millennia. Usually, during the sample period, the ratio of gold's return to the return on stocks is negative, which provides evidence that gold and stocks are an alternative asset. Unlike stocks, gold ownership in India is widespread, as it is considered a safe haven investment and, in addition to remaining an integral part of social and religious customs, it is also a rudimentary form of savings. When stock prices are denominated in US dollars, in most countries there is a strong joint movement between stock and gold yields.
Gold exhibits considerable evidence of strong hedging in India and the United States and the diversified role in China. In any case, from these six examples of market decline, it seems that gold (usually with a portfolio allocation of 10%) is a hedge worth investing in in times of economic trouble. Gold is considered a diversifying asset if Î²1 is statistically significant and negative and less than one unit in absolute value. This is attributable to the relatively small size of gold-producing companies in the stock markets of these countries.