THE ROLE OF GOLD AS A HEDGE ASSET IN STOCK MARKET TRADING

Abstract

The article examines the role of gold as a protective asset in portfolio investment under conditions of increasing volatility of stock markets, growing inflationary pressures, and rising global financial  uncertainty. Particular attention is paid to the theoretical foundations of including gold in diversified investment portfolios within the framework of modern portfolio theory, which substantiates the effectiveness of combining assets with low correlation in order to improve the risk–return ratio. The study systematizes scientific approaches to the interpretation of gold as a hedge and a safe haven asset and summarizes empirical evidence confirming its stabilizing function during periods of financial turbulence. The paper analyzes the main exchange-traded instruments used for investing in gold, including physically backed exchange-traded funds (ETFs), gold miners ETFs, and derivatives, which significantly expand investors’ opportunities for integrating gold into both strategic and tactical portfolio allocation. It is demonstrated that the availability of standardized exchange instruments has strengthened the role of gold as an effective tool for risk diversification and portfolio stabilization in modern financial markets. Based on analytical estimates provided by the World Gold Council, the study substantiates the feasibility of a strategic allocation of gold within the range of 2% to 10% of portfolio assets, depending on investment objectives, time horizon, and acceptable risk level. Empirical comparisons of portfolio performance indicators confirm that the inclusion of gold contributes to reduced volatility, improved risk-adjusted returns, and lower maximum drawdowns across different investment horizons. The results obtained confirm the significant role of gold as a stabilizing component of diversified investment portfolios under conditions of increased market volatility and macroeconomic uncertainty. The inclusion of gold in portfolio structures contributes to improving the efficiency of risk management mechanisms and enhances the resilience of investment strategies to systemic financial shocks. These findings support the theoretical and empirical justification for considering gold as an important element of strategic asset allocation within the contemporary architecture of global financial markets.