In the complex world of global finance, events happening a world away can send strong signals. After the EU, US, and UK escalated their sanctions on Russia after the death of Alexei Navalny and the continuation of the war in Ukraine, it is worth taking a second look at how geopolitical tensions affect safe haven assets like gold. Expectedly, when these actions occur, gold is supposed to rise; at least that is the traditional expectation.
Lots of studies have shown that gold rises in times of greater uncertainty. When hold believes it is a universal store of value; gold is a safe haven for our value when our currencies are wobbly or geopolitical storms are brewing. When major powers impose restrictions on a major global player, investors often expect that there will be great upheaval that will cause gold prices to rise.
When evaluating recent events and economic conditions, gold has not surged, but it has held steady or declined slightly. This indicates that while geopolitical risk is present, there are other factors that are weighing on the traditional feedback loop that drives gold prices upwards during periods of geopolitical uncertainty. If the tensions remain as they presently are, the market may have already priced what it expected to be a geopolitical risk premium on the price of gold.
The way gold remains stable during important shifts in the global market proves how strong it is. The way it moves depends on a mix of politics, expectations about the economy, policies from central banks, and shifts in supply and demand all around the world. Every move in the diplomatic world is closely watched, as it always has an impact on precious metals.
