Gold dances to the tune of geopolitics

Since ancient times, humans have been fixated on gold. First to make jewelry and other decorative elements, then came its application in certain industrial uses, then as a reserve of value (the famous gold standard) and more recently as an investment asset with which to speculate. The precious metal has always functioned as a thermometer of fear in the financial markets. And today more than ever it continues to play that role as a refuge for money.

Its historical maximum ($2,063 per ounce) was reached in August 2020, when a black cloud weighed on the world economy as a result of the covid-19 pandemic. Now, the price of this raw material has risen strongly again. This time its catalyst is not a deadly virus but war. Since Hamas launched a surprise attack against Israel on October 7, with the resulting Hebrew response, the price of gold has risen 9%, currently trading at $1,991 per ounce. Analysts believe that the conflict in the Middle East, with its shock waves throughout the global geopolitical chessboard, will keep the price of the metal at its current levels, potentially reaching its historical highs again in the event of a hardening and internationalization of the Palestinian-Israeli conflict.

“Gold has clearly been favored by geopolitical tension. The war between Israel and Hamas has led many to seek safe haven assets, and gold is one of the main candidates,” explains Nitesh Shah, head of commodities at fund manager WisdomTree, in a recent note. This expert believes that the current breeding ground is perfect for the yellow metal to continue shining. “The risk is clearly bullish this year if a recession materializes, there is financial disruption or war problems intensify. “Gold is a highly desired asset in times of economic, financial and geopolitical turmoil and these triggers could further drive interest in the metal,” argues Shah.

In stormy times, gold’s track record of returns is impeccable. According to data compiled by WisdomTree, the metal returned 31.5% the year after the bankruptcy of Lehman Brothers that sparked the global financial crisis, compared to 4.4% for the S&P 500 stock index; After the attacks of September 11, 2011, gold rose 17% and equities fell 15%; while in the Yom Kippur War the difference was even greater: gold appreciated by 47% while S&P 500 stocks collapsed by 42%.

Another factor that should work in gold’s favor is that the bullish streak in interest rates may be coming to an end. This same week, the price of the ounce reacted upwards when it became known that consumption data in the United States was more modest than expected, thereby releasing pressure on inflation. The Federal Reserve has been forced to push the price of money to a 22-year high to cool a CPI out of control since last year. The rapid rise in interest rates has dusted off the attractiveness of US public debt, another safe haven asset par excellence that competes with gold in times of uncertainty. “Consumption and inflation data suggest that monetary tightening is coming to an end and that has triggered many purchase orders in the market to purchase gold. In this environment, it is feasible that demand for raw materials will continue to be strong,” analysts Brian Martin and Daniel Hynes, from ANZ Banking Group, explain in a note collected by Bloomberg.

Traditionally, the big buyers of gold have been central banks. The People’s Bank of China, for example, has reported that it has been acquiring gold for 10 consecutive months, for a total of 217 tons, between November 2022 and August 2023. Monetary institutions have also joined in in recent years ETFs or exchange-traded funds, which have become popular as an investment alternative due to their diversification and low costs. Currently, they accumulate 87,000 ounces, with a market value of 171,000 million dollars.

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