This paper looks into the role of gold as a safe haven against stocks during recessions and bear markets. Following Baur and McDermott (2010) and Baur and Lucey (2010), we characterize safe havens by their negative correlations with stocks during crises. We extend their results in three ways. First, we identify crisis periods by exogeneous means using, successively, recession periods provided by the NBER and periods of bear US stock markets. Second, we estimate a model allowing for time varying conditional covariances between gold and stocks returns. Third, we test if long run relationships exist between gold and stocks and explore whether they can be used to construct portfolios immune to crises. The regressions are run on monthly data for gold and several stock market indices (France, Germany, UK, US, G7) over the period 1978:2-2009:1. In the short run, we find that the correlation between gold and stocks is close to zero during recessions, which qualifies gold for being a “weak safe haven”. This is also the case during bear markets against the stock indices of most considered countries, although gold appears as a strong hedge versus the US stock index. A closer look at the data shows that these results only hold on average and not for every crisis episode or every country. In the longer run a negative relationships exists between gold and some stock markets (France, UK, US). However, it does not allow the construction of a hedged portfolio immune to all crises. Overall, despite its interest for the diversification of portfolios, gold stays a risky investment, even during crises.
