Geopolitical Events No Longer Main Drivers Of Gold Prices – RBC
Geopolitical events no longer have the same kind of pull on gold prices as in the past, instead macroeconomics are the dominate driver, this according to a recent RBC report.
As gold prices rallied earlier this week on continued geopolitical tensions in North Korea and Syria, RBC examined a historical link between major geopolitical events and rising gold prices, stating that the impact on the metal has been waning over the years.
“More recently, geopolitical shocks appear to have had much less of an impact on gold, for example in 2015 when we did not see any short-term impact around the Greek debt crisis referendum or Paris attacks,” the report said.
“Macroeconomic backdrop appears to have become a greater driver of the gold price than geopolitical events in recent years.”
The biggest difference between the past and the present is the long-term impact of geopolitical events on the yellow metal.
RBC examined gold price movements following major geopolitical events from 1970 to 2017; including Richard Nixon’s resignation, the Iranian hostage crisis, Friday the 13th crash, Gorbachev coup, September 11th attacks, Iraq War, Boston Marathon Bombing, Greek Referendum announcement, Brexit, Trump becoming President, and the most recent, U.S. missile strike in Syria along with heightened North Korea tensions.
According to the data, following major global instabilities between 1970-1993, gold prices would rise on average 1% one week after the event, 5% a month after, 12% two months after, and 16% three months after that.
That ratio drops between 2001 and 2005, with gold rising 1% after the first week of the event, 2% after one month, 3% after two months and 4% after three months, the report showed.
And since 2013, that ratio plummeted even lower, with RBC’s data showing gold prices on average rising 1% after the first week, and 0% in subsequent months.
RBC attributed the change to the significant increase in liquidity and access to the physical gold market in the form of coins, bars, and ETF products.
“While we saw short-term upticks in gold following the Brexit referendum in 2016 and gold rallied amid heightened geopolitical tension related to Syria and North Korea last week, we believe that geopolitical events no longer serve as a key driver of the gold price, which appears instead to be overwhelmingly driven by the global macroeconomic backdrop and sentiment,” the report added.