The Destruction of a Safe Haven Asset?

Abstract

Gold has been a store of value for centuries and a safe haven for investors in the pastdecades. However, the increased investment in gold for speculative or hedging purposeshas changed the safe haven property. We demonstrate theoretically and empiricallythat investor behaviour has the potential to destroy the safe haven property of gold. Theresults suggest that an asset cannot be both an investment asset and an effective safehaven asset. This finding has important implications for financial stability since assets aremore likely to exhibit excess comovement and volatility in the absence of a safe haven.