Geopolitical tensions are rising once again, and traders are concerned about what this implies for their portfolios and the global stock market, particularly gold prices.
Yesterday, US House Speaker Kevin McCarthy met with Taiwanese President Tsai Ing-wen in Simi Valley, raising tensions between the US and China to new heights. Beijing has urged the United States not to intervene in its domestic affairs and has encouraged American diplomats not to lend a kind hand to Taiwan since China regards the self-governing democratic island as one of its own provinces.
Both leaders, the US House Speaker and the Taiwanese President, did not mention China at the joint news conference, but the US House Speaker afterwards said in remarks that the US should support Taiwan and deliver weapons to the country. He contrasted the situation with Ukraine, claiming that if the US had given the weaponry to Ukraine before the conflict, Russia would have taken a different stance. Chinese authorities replied after American officials met with Taiwan’s president. China has warned of decisive steps and called them “provocation.”
These heightened global tensions do not provide the most favourable circumstances for traders. They already have a lot on their plates, such as persistently increased inflation in the United States and throughout the world, the aftermath of COVID, and the continued dangers to the financial system owing to higher rates, which Jamie Dimon, JP Morgan’s CEO, said isn’t over yet. Moreover, rising oil prices threaten to undermine central banks’ efforts. The escalation of the crisis does not end here: Saudi Arabia, the US’ most important partner in the Middle East, has said unequivocally that the nation is ready to march forward without regard for what is in the best interests of the US. The oil-rich kingdom has restricted oil output twice against the wishes of the United States, and it has forged goodwill with its neighbouring country, Iran—a country with whom the Saudis have long been at odds. Saudi Arabia has also invited Syria to an important Arab League summit, possibly settling the conflict, and bringing the nation into the Arab inner circle.
The issue here is that the United States is already embroiled in a massive confrontation between Ukraine and Russia. Second, its relationship with China, the world’s second-largest economy, is deteriorating by the day. And now, its most important friend in the Middle East has the finest ties with its former adversary, Iran.
This predicament has led traders to believe that they need to use extreme caution when deciding which asset class to support.
It is commonly assumed that the present surge in gold prices is mostly the result of speculators seeking a safe-haven asset class. This week, the precious metal broke beyond the $2,000 per ounce barrier, and it has been holding this level rather effectively. But it is also vital to note that most of the yellow metal’s rise is due to weakness in the dollar index, which is predicted to fall as the Fed eases off its ultra-hawkish monetary policy. Yet, with oil prices in the upper 80s range, the Fed is likely to continue raising interest rates if they are serious about managing inflation. After all, price stability is more essential to them, and they have yet to show a willingness to make the trade-off with anything else.
Gold Price Chart
Hence, at these times of heightened geopolitical tensions and their daily escalation, traders and investors are, in my view, more inclined to choose less risky assets. It is also feasible that we may see additional gains for other gold alternatives, such as Bitcoin, which has performed pretty well in recent weeks despite the regulatory crackdown by US authorities on crypto exchanges.
Bitcoin Price Chart
In conclusion, traders should keep an eye on gold and bitcoin prices in the next few months, as both of these asset classes might witness major price rises, particularly if global tensions do not lessen.
