Gold: reflection of geopolitical tensions

In recent days, gold prices have rebounded in part due to escalating geopolitical tensions between Russia and Ukraine.

• The price of gold has been resilient this year, up about 30% year to date.
• Escalating geopolitical tensions have been behind the recent rise in the price of gold and the US dollar.
• As geopolitical tensions remain high, investors should favor assets that provide some stability to their portfolio.

In recent days, gold prices have rebounded in part due to escalating geopolitical tensions between Russia and Ukraine.

The yellow metal had in fact fallen the day after Donald Trump’s victory in the American elections, which led to a rise in the American dollar and bond yields.

Investors believe that the policies of the new Trump administration could raise inflation, which would lead the American Federal Reserve (Fed) to reconsider its interest rate cuts.

In the short term, the sustainability of this rebound depends on the evolution of interest rates. The decline in these could strengthen the appeal of gold – an asset that does not generate income.

In the long term, fiscal stimulus policies and deteriorating public finances put downward pressure on fiat currencies, such as the dollar, fueling demand for another safe haven. Gold purchases by global central banks will also impact gold prices.