Gold as a hedge during market turmoil : an analysis of the US, UK and Japanese equity markets versus fluctuations in the price of gold

Abstract

The aim of this dissertation is to analyse the price of gold against three major equity markets, namely the US, UK and Japanese markets. Using the knowledge obtained from a review of economic literature and quantitative analysis, this research study will analyse the price of gold during market turmoil. The researcher will use OLS regressions as well as a GARCH model on weekly data from 1989 to 2016.

The main conclusions derived from this study are that gold returns are negatively correlated with the equity markets in times of market stress. Consequently, gold acts as a good hedge in extreme and challenging stock market conditions. Gold is also considered to be a good asset to hold for portfolio management purposes, but not for speculative positions. It was found to have a strong negative correlation with the US equity market and US Dollar.