Examining the Hedge and Safe-Haven Capabilities of Gold and Cryptocurrencies in the Backdrop of Infectious Diseases and Geopolitical Risks

This paper examines the hedge and safe-haven capabilities of gold and cryptocurrencies against several downturns in the financial markets, including the COVID-19 pandemic and Geopolitical Risks (GPR). The study covers a sample from 2013 to 2021 at a daily frequency using a newly developed Infectious Disease Equity Market Volatility (IDEMV) tracker while employing the GARCH model and quantile regression with binary variables. The empirical results show that, against infectious disease pandemics, neither gold nor cryptocurrencies can act as a strong hedge under average conditions. However, results show that Ethereum can serve as a strong safe haven, while gold and bitcoin act as weak safe-havens. Further using regression quantiles, the results demonstrate that, during extreme bearish markets, gold and bitcoin can act as weak hedges, while Ethereum and Bitcoin can act as strong safe-havens. However, this property evaporated during the extremely bullish market. Only gold can act as a strong safe-haven against the highest IDEMV. Results also show that gold can act as a strong hedge against the GPR index, while bitcoin can serve as a weak hedge. Gold consistently reveals strong safe-haven properties against GPR during the extreme bearish and bullish markets, while cryptocurrencies provide mixed results (weak and strong safe-haven). These findings convey insight for investors and guidance to supervisors on how gold, Bitcoin, and Ethereum evolved as safe-haven and hedge instruments across lower and higher chocks associated with infectious diseases and geopolitical risk periods.