The Relationship Between Gold Prices and Stock Market Volatility

Abstract

This study investigates the dynamic relationship between gold prices and stock market volatility using a mixed-methods approach that integrates econometric modeling, volatility spillover analysis, and contextual macroeconomic interpretation. Daily data on gold, major stock indices, and macroeconomic variables were analyzed to capture post-pandemic volatility regimes and systemic shocks. Employing GARCH family models, including GARCH(1,1), EGARCH, and DCC-GARCH, the results reveal significant persistence in volatility, with gold exhibiting strong hedging and safe-haven properties during periods of financial turmoil, particularly the COVID-19 market crash and subsequent inflation-driven crises. Spillover indices demonstrate that shocks in equity markets transmit meaningfully to gold, while Granger causality tests highlight short-term bidirectional relationships without long-term causality. Event study evidence confirms that gold mitigates abnormal losses in crisis windows, and hedge ratio estimations show its effectiveness in reducing portfolio risk exposure. Robustness checks with EGARCH models confirm the existence of leverage effects, while forecast accuracy comparisons demonstrate the superior performance of advanced GARCH specifications in capturing volatility dynamics. Taken together, the findings reaffirm gold’s role as a critical safe haven and portfolio stabilizer, though emerging evidence suggests that its supremacy may be challenged by alternative assets such as cryptocurrencies under certain conditions. These insights offer practical implications for investors, policymakers, and portfolio managers in designing resilient hedging strategies under volatile global financial environments.