Economy

The purpose of this study was to investigate whether gold served as a safe haven or a risky asset during periods of heightened volatility in the Indian stock market. Given India’s cultural and economic attachment to gold, this study explored the dynamic relationship between gold prices and stock market fluctuations, particularly during times of financial uncertainty. Using daily data from 2005 to 2023, the research employed GARCH (1,1), EGARCH (1,1), and DCC-GARCH models to analyze both the unconditional and time-varying correlations between gold returns and Nifty 50 returns. The findings revealed that gold exhibited significant safe-haven characteristics during extreme market downturns, offering protection to investors against stock market losses, with strong volatility persistence in both markets and significant leverage effects in the stock market. The DCC-GARCH model showed that gold exhibited a negative correlation with equities, particularly during periods of global financial crisis (2008–09), COVID-19 crash (2020), and Russia-Ukraine conflict (2022), confirming its role as a safe haven. The practical implications of this study are particularly relevant for investors, portfolio managers, and policymakers. Investors can use gold as an effective diversification tool to mitigate stock market risk, while policymakers can monitor gold price movements as indicators of investor sentiment and financial stability. The study contributed to the understanding of gold’s dual role in the Indian financial system as both a safe-haven asset and a speculative instrument, depending on market conditions.