Do gold prices respond more to uncertainty shocks at the zero lower bound?

This paper employs a nonlinear Interacted-VAR model to evaluate the effects of economic uncertainty shocks on gold prices at the zero lower bound (ZLB) regime. We use different measures of economic uncertainty and estimate their interaction effects with monetary policy stances. We find that the responses of gold prices to uncertainty shocks are much stronger and more persistent during the ZLB periods. The regime-dependent effects are shown not to be driven by the business cycle, and are robust to alternative economic uncertainty measures. Our counterfactual experiment further demonstrates that the role of monetary policy stance is quantitatively important for explaining the different responses of gold prices to uncertainty shocks. These results - viz, the added value that gold assets appear to provide to diversified investment portfolios during periods of heightened economic uncertainty - have important implications regarding the circumstances whereby gold's likely effectiveness as a protective shield can be maximized.