World Gold Council Highlights Impacts of Geopolitics on Gold

The gold trade body makes use of its Gold Return Attribution Model (GRAM) to quantify the impacts of key drivers on gold returns.

SEATTLE (Scrap Monster): The World Gold Council (WGC), in its latest report, shared the view that geopolitical tensions on their own are likely to have influence on gold returns. The precious metal has recorded weekly gain of over 3%, primarily attributed to the escalation of geopolitical tensions in connection with the ongoing conflicts between Israel and Palestine.

According to the report, there exists a number of indices to quantify geopolitical risk. The best among them is the Geopolitical Risk (GPR) index by Matteo Iacoviello, which has capability to measure both actual and perceived geopolitical tension. The GPR index has responded to rise in geopolitical tension during several instances. The gold trade body makes use of its Gold Return Attribution Model (GRAM) to quantify the impacts of key drivers on gold returns.

From studies, it is revealed that gold responds to elevated geopolitical risk. For instance, an increase in the GPR index by 100 units has a c.2.5% positive impact on gold’s return. The start of the Russia-Ukraine conflict had sent the GPR Index from under 100 to over 250. Also, the September 11 attacks saw it surge higher significantly from under 50 to above 450.

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