Safe Havens in Turbulent Times: Assessing the Role of Gold and the USD Against Global Stock Market Indices

This study investigates the roles gold and the US dollar play as safe-haven, hedging, or diversifier assets relating to six important financial stock market indices: the S&P 500, FTSE 100, Hang Seng, CAC 40 (Paris), Shanghai Composite Index, and Nikkei 225. This paper applies the bivariate dynamic copula technique and the DCC-GARCH econometric advanced methods from January 2013 to July 2024 by focusing on four serious market crashes: the Chinese stock market meltdown (2015–2016), the trade war between the US and China (2018–2020), the COVID-19 pandemic (2020–2022), and the conflict between Russia and Ukraine (2022–2024). The results show that the US dollar displays reliable hedging and safe-haven characteristics with strong evidence mainly for its role as a safe-haven asset against the FTSE 100, Hang Seng, and S&P 500. Our findings support the idea that the US dollar serves consistently as a safe-haven asset. In contrast, gold showcased a twofold function, serving as a hedge for the FTSE 100 and the S&P 500 during crisis times and acting as a diversifier for the CAC 40 and the Shanghai Composite Index in times of market stability. This dynamic was specifically noticeable in the COVID-19 period, when gold’s hedging properties were outstanding and its role as a diversifier became more pronounced in the Paris and Shanghai markets. Our results suggest that the consistent reliability of the US dollar as a safe-haven asset combined with gold’s dual role presents a compelling argument for including both in well-diversified portfolios. This strategy enables investors to mitigate risk and safeguard their wealth, especially during periods of financial market volatility.