The Bank for International Settlements published a working paper finding that geopolitical threats and realized events increase gold returns, with the strongest effects when geopolitical risks are escalating and global financial conditions are loose. The analysis links this combination to the unusually strong safe haven role of gold in 2024–26, when gold prices rose by more than 130% between January 2024 and their April 2026 peak. Using monthly data from 1990 to 2026 and separating geopolitical shocks from broader financial uncertainty, the study finds that a one standard deviation threat shock raises gold returns by about 0.45% immediately, while a realized event shock produces a 0.60% increase after four months. When rising geopolitical risk coincides with loose financial conditions, the effects increase to 1.3% immediately for threats and 1.2% after three months for realized events. The results point primarily to a credit and liquidity channel, under which easier funding conditions allow investors to rebalance toward gold, while evidence for an opportunity cost channel is less conclusive.
Bank for International Settlements study finds loose financial conditions amplify gold’s response to geopolitical risk
A Bank for International Settlements working paper finds that geopolitical shocks raise gold returns most when financial conditions are loose and geopolitical risks are escalating. Under those conditions, one standard deviation shocks increase returns by up to 1.3% for threats and 1.2% for realized events, primarily because easier credit and liquidity conditions facilitate portfolio reallocation.