Safe-Haven Gold Demand: Geopolitical Risk Boosts Metals

The precious metals bull appears to remain undeterred. And the longer he runs, the more apparent it is that safe-haven gold demand — much of it triggered by rising geopolitical risk — is a key reason for the ongoing price support.

For starters, many readers likely are aware by now of the impressive performances recorded by gold and silver so far in 2024.

Through Wednesday of this week, gold is up 32% on the year.[1] As for silver, that’s up even more, landing at 36% over the same period.[2]

Impressive, to be sure. But one of the more underreported (in my opinion) stories about gold and silver is the tremendous resilience demonstrated by each metal since 2022.

It was in March of that year the Federal Reserve kicked off an historic rate-tightening regime to combat inflation — one that saw the central bank raise rates 11 separate times over the subsequent year and a half.[3]

The benchmark federal funds rate climbed a whopping 525 basis points over this period — the fastest cycle of rate hikes in about 40 years.[4] In spite of this fact, however, normally rate-sensitive gold and silver appreciated 52% and 43%, respectively from the beginning of 2022 through this past Wednesday.[5]

So, what is it? What’s the reason precious metals managed to thrive in the face of what should have been an onerous (for gold and silver) rate-tightening regime?

According to an array of analysts, the fundamental answer is a desire on the part of individuals and institutions — including central banks — to tap into metals’ safe-haven potential as a way to help defend portfolios and reserves against an array of geopolitical risks.

“The price of gold has risen sharply, invalidating the traditionally strong correlation between the price of gold and ETF outflows, or with US real interest rates since the start of the war in Ukraine,” analysts at Banque de France noted. “This jump appears to be justified by investors buying for nonfinancial reasons, motivated by geopolitical tensions.”[6] 

Hold that thought for just a moment.

Recently, the reelection of Donald Trump triggered a wave of dollar strength and aversion to so-called safe-haven assets as investors suddenly felt more comfortable about the prospective fortunes of risk assets.[7] Gold’s reaction, for example, was to drop as much as 8% in the first two weeks following the election.[8]

Concerns quickly mounted that perhaps the run of the precious metals bull was nearing an end.

But wait — over the last week or so, however, both gold and silver have demonstrated renewed resilience.

The reason for that, say analysts, is that the metals have, have — yet again — seen a “reactivation” of the safe-haven properties which regularly have proved to be a source of energy for the metals.

Among the most recent catalysts of metals price strength have been a return to gold-buying by China’s central bank, as well as acute national distresses in both Syria and South Korea.

And now gold…as of Wednesday…is back up to roughly $2,760 per ounce, not far below the all-time high of right around $2,800 per ounce reached just days prior to the election.[9]

In other words: Once again, the desire of investors — including central banks — to embrace precious metals on the basis of their potential as safe havens has proven to be one of the strongest and most reliable gold and silver catalysts.

This week, we’re going to look more closely at precious metals’ recent recovery from a wave of price weakness. And as we do, we may find it is gold and silver’s potential as safe-haven assets that really is among the metals’ most powerful and dependable drivers — and ultimately why many analysts not only were largely unconcerned by the recent demonstration of volatility, but why they remain confident that metals will continue to rise through the foreseeable future.

Safe-Haven Gold Demand Intensifies: China Resumes Purchases; Syria, South Korea Boil Over

What’s notable about the wave of momentum that seemed to dislodge gold from the price malaise into which it fell following the election is that it appears to have been keyed by one of the metal’s most historically reliable drivers: safe-haven demand.

As gold and silver were weakening against the backdrop of post-election dollar strength a few weeks ago, metals strategist Peter Grant suggested it largely will be factors expected to drive safe-haven gold buying that may provide reliable, ongoing price support:

Once the post-election dust settles, [the market will] once again focus on geopolitical tensions, concerns about the Chinese and European economies, soaring global debt levels, ongoing central bank gold buying, and the political uncertainty in Germany and Japan.[10]

Not long after, some of the very factors Grant identified as potentially pushing gold back into gear are being cited by analysts as having, in fact, done just that.

And the thread that binds them? Each is a potential source of uncertainty — even volatility — that can prompt investors to diversify into safe-haven assets such as gold and silver.

Among the biggest was the breaking news from last Saturday that the People’s Bank of China (PBOC) resumed gold purchases for the first time in seven months.[11]

Since 2022, China’s central bank has displayed among the largest appetites when it comes to gold consumption. For calendar year 2022, China purchased the second-highest amount of gold of all central banks.[12] Then, in in 2023, the PBOC turned right around and purchased the single-highest total amount of any central bank that year.[13]

As for why the PBOC has felt it necessary to buy so much gold so quickly, analysts suggest the reasons ultimately are rooted in the metal’s safe-haven potential.

“Amid fraying geopolitics, increased sanctioning, and de-dollarization, we observe an increased appetite to buy real assets, including gold,” Gregory Shearer, head of base and precious metals strategy at J.P. Morgan, recently said.[14]

As for why the PBOC stopped buying gold, observers suggest it’s because of the heights to which the metal had climbed.

“Another month of China refraining from buying indicates the PBOC is looking for a better price to build its gold reserves,” Nitesh Shah, commodity strategist at WisdomTree, said as October tuned to November, adding:

We don’t think China has changed its foreign exchange reserve strategy and so is looking for more gold, but [is] deterred by the higher prices.[15]

But even at higher prices, China appears to have concluded that both the geopolitical troubles they perceive as risks as well as gold’s perceived safe-haven protections are too compelling to ignore.

“The resumption of buying shows the PBOC is still keen to diversify its reserves and guard against currency depreciation,” Bloomberg said, “even with [precious metals] near record-high levels.”[16]

At the same time China was declaring its resumption of gold purchases, other tense geopolitical events were unfolding that analysts say also have provided gold with price support.

Analyst Says Syria Collapse Has “Boosted Demand for Traditional Safe-Haven Gold”

Among the most notable of those was the seizure of Syria’s capital city, Damascus, by rebel troops, resulting in the forced exile to Russia of President Bashar al-Assad.[17] Last Sunday, dozens of Islamic State targets were hit by U.S. airstrikes, and President Biden warned that the abrupt exit of Assad could hasten the return of Islamic extremism to Syria.[18]

“The government’s collapse in Syria could see haven demand flowing in,” ANZ Group Holdings Ltd. said at the time.[19] Additionally, Tina Teng, market analyst at CMC Markets, noted that the Syrian crisis unfolding against the backdrop of existing Middle East tensions “has heightened global political and economic uncertainties, boosting demand for traditional safe-haven asset gold.”[20]

Other recent geopolitical distresses to which analysts have attributed renewed strength in the price of gold include turmoil in South Korea, which technically remains at war with North Korea.

Last week, martial law was declared in South Korea for the first time in more than 40 years. South Korea President Yoon Suk Yeol suddenly imposed the draconian measure amid efforts by the opposition-controlled parliament to end his presidency.[21]

The declaration was reversed just hours later, but the rapid surge in national and regional uncertainty in one of the world’s most geopolitically sensitive regions proved to be a trigger of safe-haven gold interest according to analysts.[22]

“With the ongoing tensions in South Korea and the Middle East,” market analyst website Invezz noted at the beginning of this week, “safe-haven demand for gold could spur a rally in prices.”[23]

Sure enough, from the middle of last week through the middle of this week, the price of gold appreciated about 4% to well over $2,700 per ounce while silver jumped by 4.5%.[24] The price rise also was helped along by some additional optimism that monetary policy would remain favorable for precious metals heading into the new year.[25]

Now, it seems, concerns from a month ago that precious metals might be nearing the end of their stellar, multiyear run have all but disappeared — and seem to have done so for the reason Zaner’s Peter Grant and others have suggested recently: metals’ irresistible appeal as safe-haven assets at a time in world history when uncertainty seems as acute as it does persistent.[26]

And as a number of strategists right now are projecting, the safe-haven-based pillars of support for metals could translate into ongoing upward price momentum through at least the foreseeable future.

Safe-Haven Gold Demand Could Push Metals to $3,000 in 2025, Say Strategists

As it turns out, a number of credible analyst teams are particularly bullish on precious metals right now. And a great deal of that enthusiasm is based on gold and silver’s highly regarded properties as safe-haven assets.

Recently, Goldman Sachs cited such factors as geopolitical upset, persistent inflation, and perceived fiscal unsustainability as reasons why commodities analysts there think gold could climb as high as $3,150 per ounce next year.[27] Bank of America’s head of commodities Francisco Blanch is another who thinks gold’s safe-haven capacity could help push the metal to $3,000 per ounce in 2025.[28] And UBS projects gold prices approaching $3,000 per ounce next year and silver prices rising as high as $38 per ounce in part on both metals’ perceived potential as risk hedges.[29]

Hedging against geopolitical and fiscal risks is an obvious safe haven “play,” of course. And when you examine the reasons why central banks say they’re buying so much gold, including…

• as an inflation hedge…

• as a broader crisis hedge…

• as an effective diversifier of reserves…

…then you quickly realize gold’s safe-haven potential lies at the foundation of their gold purchases, as well.[30]

To be sure, individual investors are a far cry from central banks. But although they aren’t going to have the same sums at stake, the amounts that investors do have to consider certainly mean everything to them. Understandably, then, investors may be interested in applying risk-mitigation strategies on behalf of their own portfolio interests — strategies that could include the acquisition of precious metals assets.

Investors Can Take Advantage of Perceived Opportunities in Precious Metals through Tax-Advantaged Gold IRAs

Fortunately, while alternative assets may be perceived as more exotic and therefore more difficult for “regular” investors to access on a straightforward and transparent basis, the truth is that they’re not — or aren’t any longer. That’s especially true for those interested in purchasing their gold and silver through a tax-advantaged gold IRA (please consult with a qualified advisor to learn more about the tax implications of IRAs). In recent years, gold IRAs have become much more common among investors who are looking for the benefits of hedging with assets noncorrelated to traditional paper-based assets.

Whether the addition of physical precious metals to one’s inventory of assets actually is an appropriate step to take is a decision each investor must answer for themselves. What may be less uncertain is whether safe-haven gold demand, more generally, is expected to continue through at least the foreseeable future.

Multiple analysts say it is, and they further explain that they expect central banks throughout the world to do a great deal of the gold-buying on that basis. Which suggests acute safe-haven gold demand may provide future price support for the metal in the same way analysts suggest it has supported gold prices in recent days.

And while it can’t be known if the anticipated conditions — including heightened geopolitical risk — that largely give rise to safe-haven gold demand will persist, it appears central banks are inclined to take the position of “better safe than sorry.” As for individual investors, they’ll have to determine if assuming that same position makes as much sense for them.

[1] CNBC.com, “Gold COMEX (Feb′25)” (accessed 12/12/24).

[2] CNBC.com, “Silver COMEX (Mar′25)” (accessed 12/12/24).

[3] FederalReserve.gov, “Open Market Operations” (accessed 12/12/24).

[4] Ibid.

[5] StockCharts.com (accessed 12/12/24).

[6] Victor Baccarini et al., Banque de France, “How can we account for the increase in the price of gold?” (September 13, 2024, accessed 12/12/24).

[7] Myra Saefong, MarketWatch, “Why gold prices are now dropping on the heels of Trump’s win” (November 11, 2024, accessed 12/12/24).

[8] CNBC.com, “Gold COMEX (Feb′25).”

[9] Ibid.

[10] Saefong, “Why gold prices are now dropping.”

[11] Sybilla Gross, Atul Prakash and Jack Ryan, Yahoo Finance, “Gold Rises as China Resumes Buying and Syria Boosts Haven Demand” (December 9, 2024, accessed 12/12/24).

[12] World Gold Council, “Gold Demand Trends Full Year 2022” (January 31, 2023, accessed 12/12/24).

[13] World Gold Council, “Gold Demand Trends Full Year 2023” (January 31, 2024, accessed 12/12/24).

[14] Joseph Moss, International Banker, “What’s Behind China’s Gold-Buying Spree?” (August 14, 2024, accessed 12/12/24).

[15] Qiaoyi Li, Ryan Woo and Anushree Mukherjee, Zawya, “China’s central bank pauses gold purchases for sixth straight month” (November 7, 2024, accessed 12/12/24).

[16] Sybilla Gross, Atul Prakash and Jack Ryan, Bloomberg.com, “Gold Rises as China Resumes Buying and Syria Boosts Haven Demand” (December 9, 2024, accessed 12/12/24).

[17] Ammar Cheikh Omar, Carol E. Lee and Corky Siemaszko, NBC News, “Syrian rebels capture Damascus as President Assad flees the country” (December 8, 2024, accessed 12/12/24).

[18] Gross, Prakash and Ryan, “Gold Rises as China Resumes Buying.”

[19] Ibid.

[20] Tina Teng, Euronews, “Gold rallies ahead of Central Bank rate decisions and post-Syria tensions” (December 11, 2024, accessed 12/12/24).

[21] Foster Klug, AP News, “What to know about South Korea’s martial law and the impeachment vote threatening its president” (December 12, 2024, accessed 12/12/24).

[22] Se Eun Gong, NPR.org, “South Korea’s Yoon defends martial law decree as an act of governance” (December 12, 2024, accessed 12/12/24).

[23] Invezz, “Gold price outlook: can safe haven demand drive prices above $2700?” (December 9, 2024, accessed 12/12/24).

[24] CNBC.com, “Gold COMEX (Feb′25)”; CNBC.com, “Silver COMEX (Mar′25).”

[25] Anushree Ashish Mukherjee and Anjana Anil, Reuters.com, “Gold hits two-week high in the run-up to US inflation data” (December 10, 2024, accessed 12/12/24).

[26] Gary Wagner, Kitco, “Decisive election outcome and dollar strength move gold sharply lower” (November 6, 2024, accessed 12/12/24).

[27] Christiaan Hetzner, Yahoo Finance, “Donald Trump’s presidency could light a speculative fire under gold, pushing the price to a fresh all-time high” (November 19, 2024, accessed 12/12/24).

[28] Bloomberg.com, “BofA’s Blanch Sees Gold at $3,000 by End of 2025” (December 4, 2024, accessed 12/12/24).

[29] Julian Wee, UBS, “Silver: Not everything that glitters is gold” (November 4, 2024, accessed 12/12/24).

[30] World Gold Council, “2024 Central Bank Gold Reserves Survey” (June 18, 2024, accessed 12/12/24).