Ukraine, Russia, gold and geopolitics


As the world’s attention has shifted to the crisis in Ukraine, we have received a lot of queries from investors about the effects of the recent events on gold’s performance in the short, medium and long term.

Taking a step back, we believe that geopolitical events in isolation are neither the only nor the main reason why investors should own gold. Gold’s role as a strategic asset is linked to its broad contribution to returns, diversification, liquidity and positive portfolio impact.

However, events like these represent a clear example of why gold is such an effective and well-established hedge against expected and unexpected market risks.

As Russian troops entered Ukraine on Thursday morning GMT, the gold price surged to an intra-day high of US$1,974/oz.1 And while it has given up most of Thursday’s gains as global equities rebounded, gold is still more than 5% higher month-to-date.2

Historical analysis suggests that gold has reacted positively to tail events linked to geopolitics and, despite price volatility, tended to keep those gains in the months following the initial event (Chart 1). In addition, gold trades in a deep and highly liquid market, with collective volumes surpassing US$120bn a day on average and tight bid-ask spreads. All these, combined with the fact that bullion carries no credit risk, makes gold a sought-after safe haven asset.

Gold also significantly outperformed against the US dollar as well as US, European, and UK sovereign bonds over the past week (Chart 2). And gold’s tested performance role as a high-quality, liquid store of wealth stands in stark contrast to assets such as bitcoin, which performed in line with equities during the recent crisis – both as equities plummeted as well as when they rebounded towards the end of the day and in early morning trading on Friday, February 25th.

Looking forward, we believe that gold may experience price volatility in either direction due to potential tactical positioning but investment demand is likely to be supported longer term by high inflation, geopolitics and overall market pullbacks, especially since – as we discussed in our Gold Outlook 2022 – many of the simmering tensions that took the back seat during the COVID pandemic are starting to resurface.


1Based on the gold spot price (XAU) highest recorded level intra-day on 24 February 2022.

2Based on the LBMA Gold Price AM as on Friday 25 February 2022, due to data availability