Dynamic Correlations among Gold Returns, USD/IDR Returns, and the Jakarta Composite Index in Examining Gold’s Safe Haven Role in Indonesia
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Abstract
Increasing volatility in global financial markets caused by the COVID-19 pandemic, geopolitical conflicts, inflationary pressures, and changes in monetary policy has encouraged investors to seek assets capable of protecting portfolio value during periods of uncertainty. Gold is theoretically a potential safe haven, but evidence of its effectiveness remains mixed, particularly in emerging markets such as Indonesia. This study aims to analyze dynamic correlations among gold returns, Jakarta Composite Index (JCI) returns, and USD/IDR exchange rate returns and examine gold’s safe haven role in Indonesia. A quantitative approach was employed using secondary monthly data on gold, JCI, and USD/IDR returns from January 2016 to December 2025. The analysis used Dynamic Conditional Correlation–Generalized Autoregressive Conditional Heteroskedasticity (DCC-GARCH), preceded by stationarity tests, ARCH effect tests, and GARCH model estimation. The findings indicate that the relationships among gold, JCI, and USD/IDR returns are dynamic and vary with market conditions. The correlation between gold and JCI returns tends to be negative, whereas the correlation between gold and USD/IDR returns tends to be positive. Although the DCC parameters are not statistically significant, the DCC-GARCH model captures changes in correlations among the variables throughout the study period. These findings suggest that gold has potential as a safe haven during periods of heightened market volatility, although its effectiveness is not consistent throughout the observation period. The study implies that gold may be considered an instrument for diversification and risk mitigation in investment portfolio management in Indonesia.
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