More Stories

Informist, Tuesday, Oct. 1, 2024

 

MUMBAI – Gold acts as an ideal hedge against unpredictable geopolitical shocks, which often lead to financial market turmoil and damage investor portfolios, the World Gold Council said in a report Tuesday. Gold's key attributes, such as its safe-haven nature, its ability to generate long-term returns, and its low correlation with risk assets will continue to have immense value for investors who seek to build a resilient portfolio, it said in the report.

 

"When we examine how various assets respond to sudden geopolitical risk spikes, gold's robust performance during such events becomes clear," the WGC said. "This is further evidenced in our 2024 Central Bank Gold Survey, which revealed that geopolitical risk was a key driver that spurred on central banks in their recent record-breaking gold purchases," WGC said.

 

Geopolitical instability is one of the biggest concerns of global central banks when it comes to reserve management, the report said. The geopolitical risk index shows increasingly frequent periods when geopolitical risk is elevated. These periods have been challenging for investors over the past three years, the report said. So far in 2024, the geopolitical risk index has recorded 15 spikes, when the index surged by more than 100%, because of the Russia-Ukraine war and developments in West Asia, the report said. There were 31 spikes in 2023, 20 spikes in 2022, and 41 spikes in 2021.

 

Gold witnessed positive returns almost every week during which the geopolitical risk index soared by over 100%, the report said. Gold averaged a weekly return of 1.6% during these spikes, while global equities declined, on average, by 0.8%.

 

WGC's monthly 'Gold Return Attribution Model' shows that geopolitical risks contributed 4.3% to gold's return to date this year. Every 100-unit increase in the index corresponds to a 2.5% rise in gold prices, it said.

 

"Historical data tells us that when geopolitical risks stay elevated (typically above 100), global equities suffer – evidenced by the negative correlation between the GPR Index and global equity returns," WGC said. Geopolitical shifts and regional conflicts are identified by global investors, including Australian financial advisors, as the third and fourth-biggest trends affecting their investing decisions, it said.

 

Global equities have fallen when geopolitical risks spiked during April and August despite having delivered robust results this year, the report said.  End

 

US$1 = 83.82 rupees

 

Reported by Ashutosh Pati

Edited by Ashish Shirke

 

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

 

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

 

Informist Media Tel +91 (22) 6985-4000

Send comments to feedback@informistmedia.com

 

© Informist Media Pvt. Ltd. 2024. All rights reserved.