In Gold and Franc We Trust? Rethinking Safe Havens in Europe

Given the critical need for portfolio diversification, we analyze the interdependencies of gold and the Swiss Franc with European stock markets. Using the R 2 decomposed connectedness approach and an extensive dataset spanning May 1, 2004, to May 31, 2025, we investigate the dynamic interactions separately within developed and emerging markets. Our findings reveal that total connectedness is stronger within developed markets and prone to several extraneous disruptions. While the Swiss Franc imports shocks from developed markets but acts as a volatility exporter in emerging markets, gold consistently demonstrates shock-absorbing behavior in both domains. We further assess their effectiveness in risk mitigation by using bivariate and multivariate portfolio strategies. The Swiss Franc offers considerable hedging advantages for developed stock portfolios, especially during financial turmoil, though these attributes wane in emerging markets. In contrast, gold is not an effective hedging tool in neither market type. The multivariate hedging strategy generates suboptimal risk reduction in emerging economies compared to developed ones and, under specific conditions, proves futile. Furthermore, bivariate portfolio analysis shows that gold provides superior risk-adjusted returns in both settings and under all market regimes. Although the Swiss Franc's inclusion often reduces Sharpe ratios, it emerges as a more defensive asset for downside protection during crises. Notably, the multivariate portfolio methodology is crucial for attaining higher Sharpe ratios in emerging markets, even though it doesn't improve risk-adjusted performance in developed markets. These findings become essential for investors and policymakers managing the complexities of modern financial markets.