Historical precedent has taught us that gold tends to rise in price in the face of geopolitical tensions. However, the gold price is multifaceted and rarely responds to a single trigger, but is driven by several factors. What geopolitical risks should be taken into account in the current context?

Despite some fluctuations during the year, the price of gold rose by 15% in 2023 to an all-time high of USD 2,130.20 per ounce. The US banking crisis, geopolitical tensions, war conflicts and the US Federal Reserve’s stance on maintaining interest rates were some of the main factors that contributed to the fact that gold continued to be a safe-haven asset for investors.

This year, aside from war and geopolitical conflicts, the lack of clarity around the timing of the US Federal Reserve’s monetary easing cycle and the growing popularity of Donald Trump’s candidacy may substantially impact the 2024 election, the geopolitical landscape and gold’s appreciation. But let us focus on geopolitics.

De-dollarisation and reserve diversification

As for the economic sanctions against Russia in the wake of the war in Ukraine, these drove up the prices of hydrocarbons and other commodities, while undermining the credibility of the global financial system by weaponizing the dollar and seizing Russian reserves, leading to an increase in central banks’ demand for gold.

A survey of 85 sovereign wealth funds and 57 central banks by Invesco, a global asset management firm, showed that almost 60% of respondents are concerned about the precedent of sanctions against Russia and consider that these developments have made gold a more attractive asset, while 68% hold reserves in their coffers compared to 50% in 2020.

In this context, the growing trend of dedollarisation shows no signs of stopping. According to the IMF, the market share of the US dollar as the world’s reserve currency has fallen from 66% in 2003 to 58.4% at the end of the fourth quarter of 2023. This seems to confirm that the international financial system is facing an unstoppable transformation process, encouraged by the large emerging economies that are part of the BRICS group.

Rising tensions in the Middle East

The armed conflict unleashed between Israel and Palestine on 7 October caused the price of gold to rise by more than 10%, reaching a high of over 1,900 euros per ounce. This rise in the price of gold was driven not so much by the armed conflict between these two actors, but by the possible ramifications if other countries in the region and the West became involved.

While the tug of war between Hezbollah and Israel as a result of the massacre in Gaza was in danger of spiralling out of control, Ansar Al-lah, the Islamist resistance group better known as the Houthis and operating in Yemen, also showed solidarity with Palestine by attacking ships transiting the Red Sea bound for Israel and other countries that continue to fuel the genocide.

This exponentially increased shipping costs and the risk of reigniting the flames of war in Yemen after the last ceasefire, driving up the price of gold. The response from the US and some of its client states was swift, and the bombing of Yemen continues to this day.

As for the US military’s illegal occupation of Syria, it continues to provoke a response by armed resistance groups. The attack on one of the US military bases has been followed by an increase in US bombings in Syria and Iraq against military targets that Washington links to the Iranian government.

In this context, US threats against Iran, accusing it of supporting Syria, Yemen and Palestine, are a clear attempt to widen the current conflict. This would also have ramifications for the global economy, financial markets and the value of gold as a safe-haven asset for investors.

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