Investigating the Dynamic Connection Between Gold and Stock Markets During Crises

Abstract

This paper examines the dynamic interactions between national stock indexes of global significance and gold, a prominent safe-haven asset, during the two most recent crises (the conflict between Russia and Ukraine and COVID-19). Daily data and the sophisticated Time-Varying Parameter Vector Autoregressive (TVP-VAR) approach are used to estimate how the dynamic relationship changes throughout the course of the crisis. According to research, gold is a net recipient of causal impacts from stock indices; this is particularly evident in the early phases of COVID-19 but considerably diminishes as the conflict progresses. Furthermore, it is discovered that the US and European stock indexes have a far greater impact on gold than the Asian indices. They have an impact on the Nikkei225 index as well. In general, gold works well as a crisis buffer, and this is especially evident in the context of COVID-19. This is especially useful for shielding investors’ portfolios from poor performance during crises.