Why is gold a safe haven?

Gold is a prominent safe haven asset but risky compared to other safe haven assets such as US government bonds. We identify unique features of gold that explain why investors under stress buy the riskier alternative gold. We argue that the decision to buy gold is rooted in behavioral biases associated with gold’s history as a currency, a store of value and a safe haven. The empirical analysis shows that gold was a particularly strong safe haven in the aftermath of September 11, 2001 and the Lehman bankruptcy in September 2008. The Global Financial Crisis also exemplifies the role of the US dollar as a safe haven currency and how it can mask the safe haven effect of gold. Finally, we find that safe haven assets do not exacerbate crises via a negative feedback effect.