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The Rising Tide of Geopolitical Risk

Isaac Nuriani    |
Jul 1, 2024
  • Precious metals, particularly gold, often see a rise in value during acute geopolitical uncertainties.
  • The Russia-Ukraine invasion in early 2022 caused gold prices to spike by 13%, briefly surpassing $2,000 per ounce.

In a world seemingly characterized by uncertainty, one of the most concerning types of uncertainty – for some people, maybe even worrisome – is the uncertainty that arises from geopolitical risk.

Federal Reserve economists and geopolitical analysts Dario Caldara and Matteo Iacoviello define geopolitical risk as the “threat, realization, and escalation of adverse events associated with wars, terrorism, and any tensions among states and political actors that affect the peaceful course of international relations.”[1]

And as that definition clarifies, geopolitical risk can be a big deal. Among other things, it can affect the stability of economies and financial systems.

“Sudden increases in geopolitical risk are non-economic at their origin,” the Centre for Economic Policy Research notes, “but have important repercussions for macroeconomic and financial variables.”[2]

Geopolitical risk has always been with us, of course. However, in the view of some experts, that risk and associated uncertainty has been especially pronounced in recent days. One reason for that, they say, in part has to do with the range of challenges faced by governments, businesses, and citizens as nations retreat from the global interconnectedness that had come to characterize the post-World War II era of international relations.

As for why they’re retreating, analysts say it’s because a recent string of global shocks has countries reevaluating their vulnerability to breakdowns in a highly dependent global economic system. And the fragmentation resulting from these national reassessments apparently is raising the geopolitical risk quotient for all concerned, including many investors.

In fact, says the Brookings Institution:

“Geopolitical tensions have become the single most important risk confronting the global economy.”[3]

And they’re hardly alone in that view.

In this article, we’re going to look at just how widespread concerns are about the possible impact of geopolitical shakeups in the global economic order. And then we’re going to discuss how one specific asset class – precious metals – has traditional characteristics that lead many experts to believe they could be of some help to investors who want to find alternate ways to manage portfolio risks posed by geopolitical uncertainty.

BlackRock: “Most Fraught Global Environment Since World War II”

“A world ordered for decades by globalization and geoeconomics has quickly become a world grounded in geopolitical risk,” S&P Global analysts write. “Accumulating shocks such as the COVID-19 pandemic and the Russia-Ukraine conflict have persisted, significantly reorganizing global structures and relationships in 2024.”[4]

And some say the reorganization could continue well beyond 2024. Citibank suggests deglobalization trends such as decoupling are “here to stay.”[5] (Decoupling refers to the reduction in interdependence between countries, and onshoring, which is the relocation of business and manufacturing within national borders.) Such trends result from attempts to reduce the vulnerabilities referenced earlier in this article, but they also are symptomatic of a broader movement away from international cooperation…and toward heightened geopolitical discord.

So, just how concerning is the worldwide geopolitical environment?

No asset manager oversees more money or has more of a stake in geopolitics than BlackRock – it manages $10.5 trillion.[6] Which means it has more than a passing interest in the matter of geopolitical risk and its impacts. In describing how it sees the global geopolitical condition right now, BlackRock analysts aren’t mincing words:

“This is, in our view, the most fraught global environment since World War Two – a full break from the post-Cold War era. We see geopolitical cooperation and globalization evolving into a fragmented world with competing blocs.”[7]

And BlackRock apparently won’t get an argument from the broader business community. A global risk survey of businesses conducted by Oxford Economics in late 2023 found geopolitical tension to be respondents’ single biggest concern through at least the medium term. Among the multitude of specific risks businesses identified as being concerns potentially for years to come were the Israel-Hamas conflict, tensions between China and Taiwan, and ongoing strain in the relationship between Russia and NATO in the years ahead.[8]

Look for “More Frequent Conflicts of Increasing Consequence,” Says Strategist

Ronald Temple, chief market strategist at global asset manager Lazard, is another who sees the geopolitical outlook potentially deteriorating, going forward.

“The global trajectory is toward more frequent conflicts of increasing consequence,” Temple says.[9]

And what about the projected impacts of such a trajectory on the global economy?

“Ongoing geopolitical conflicts and tensions are likely to depress growth further,” Temple suggests, “while adding to inflationary pressures that are beyond the control of central banks.”[10]

Those are some of the more chronic potential economic implications of heightened geopolitical risk and uncertainty. Investors also must be prepared to deal with more-acute impacts that can happen if looming geopolitical risks are  realized.

“Geopolitical and political events represent key risks for portfolios,” analysts at Goldman Sachs have written, “but they are particularly difficult to position for. Timing and market impact tend to be hard to anticipate.”[11]

One way investors can choose to address such potential challenges could be to include among their core holdings so-called real assets that have the potential to serve as stores of value…and have at times strengthened in the face of significant distress, including both chronic geopolitical uncertainty and sudden future geopolitical upheaval.

Precious metals are popular examples of such assets.

World Gold Council: High-Profile Geopolitical Events Principal Gold Drivers

There are numerous historical examples of precious metals prices trending upward in value on the back of acute geopolitical uncertainty. And among the most prominent of those examples is Russia’s invasion of Ukraine.

From the beginning of February 2022, when it was clear to all that a Russian advancement against Ukraine was imminent, through the actual first day of hostilities (February 24) and into the first part of March 2022, precious metals demonstrated what could be fairly described by analysts as significant strength.[12]

Over that period, the price of gold rose 13% to briefly cross above $2,000 per ounce, while silver responded dynamically, as well, rising 14%.[13]

As fears subsided that the conflict would become more widespread, the specific risk premium that accrued to gold and silver from the invasion began to subside, as well.[14] But the reaction of gold and silver to strengthen over those weeks provides a textbook illustration of precious metals’ traditional potential to serve as a valuable hedge against adverse geopolitical events. And there’s something else.

Although the spike in metals prices attributed to the initial phase of the invasion began to dissipate through the spring of 2022, the persistence of the conflict along with the addition of other substantial geopolitical concerns, in the view of some experts, has served to add longer-term support to gold and silver. In early 2024, the World Gold Council cited the Russia-Ukraine war and Israel-Hamas conflict as among the most vigorous drivers of gold in 2023, and suggested those same drivers would continue to support gold prices, going forward[15], even as the world hopes for and works toward resolution of the conflicts.

This recent interest in precious metals’ traditional ability to remain resilient and at times even strengthen in the face of both acute and chronic geopolitical distress has signaled to many investors that precious metals may be an important diversification tool in the years ahead, given the multitude of experts projecting that geopolitical risk levels will stay elevated. And while forecasts of greater geopolitical distress hardly count as good news, the possibility that metals could serve as effective portfolio hedges in such environments at least may provide some investors with a particular benefit worth more than gold itself: peace of mind.


[1] Yevheniia Bondarenko et al., Centre for Economic Policy Research, “Measuring geopolitical risk: Perceptions matter” (June 5, 2023, accessed 6/24/24).
[2] Ibid.
[3] Indermit Gill and M. Ayhan Kose, Brookings, “5 major risks confronting the global economy in 2024” (January 17, 2024, accessed 6/24/24).
[4] S&P Global, “Top Geopolitical Risks of 2024” (accessed 6/24/24).
[5] Citi, “Geopolitical Risks to the Fore Once Again” (November 2, 2023, accessed 6/24/24).
[6] Statista, “Largest asset managers worldwide as of June 2024, by value of managed assets” (accessed 6/24/24).
[7] BlackRock, “2023 Global Outlook” (accessed 6/24/24).
[8] Elliot Smith, CNBC.com, “Geopolitical instability and a packed election calendar have strategists wary of 2024” (November 21, 2023, accessed 6/24/24).
[9] Ibid.
[10] Ibid.
[11] Alice Gledhill, Bloomberg.com, “Goldman Client Survey Shows Geopolitics Is Biggest Risk in 2024” (January 16, 2024, accessed 6/24/24).
[12] Wilson Center, “Two Years of War in Ukraine: Timeline to Invasion” (January 1, 2024, accessed 6/24/24).
[13] London Bullion Market Association, “Precious Metal Prices” (accessed 6/24/24).
[14] Brijesh Patel, Reuters.com, “Gold retreats, palladium sinks 9%, on progress in Ukraine talks” (March 29, 2022, accessed 6/24/24).

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