Is gold a safe haven or a hedge for the US dollar? Implications for risk management

•We assess the role of gold as a safe haven or hedge against the US dollar.•We consider copulas to model average and extreme market dependence between gold and the US dollar.•We find evidence of average dependence between gold and US dollar depreciations, so gold is a hedge.•Gold can act as an effective safe haven since evidence of symmetric tail dependence is found.•Diversification benefits and downside risk reduction are found for mixed gold-currency portfolios.

We assess the role of gold as a safe haven or hedge against the US dollar (USD) using copulas to characterize average and extreme market dependence between gold and the USD. For a wide set of currencies, our empirical evidence revealed (1) positive and significant average dependence between gold and USD depreciation, consistent with the fact that gold can act as hedge against USD rate movements, and (2) symmetric tail dependence between gold and USD exchange rates, indicating that gold can act as an effective safe haven against extreme USD rate movements. We evaluate the implications for mixed gold-currency portfolios, finding evidence of diversification benefits and downside risk reduction that confirms the usefulness of gold in currency portfolio risk management.