Gold: risk premium and expected return

An empirical paper suggests that the risk premium and excess return on gold have been time-varying and predictable, also out-of-sample. The key predictors have been the variance risk premium and the jump risk premium of gold. Gold has historically also served as a hedge and “safe haven” for equity and bond investments, but this could not have been expected based on forecasting models. Common sense suggests that the hedge value of gold depends on the dominant market shock. For example, gold hedges against inflationary policies but not against rising real interest rates.