Gold can be an ideal hedge for increased/high geopolitical risk.. Military conflicts, war in Ukraine, sanctions and tariffs, trade wars, lack of cooperation between Western countries, deglobalization, etc.
In addition, historical bull markets in gold have given impressive returns! See Figure 1. In the 10 years from 2001 to 2011, for example, the price of gold increased by 644%!
Recently, there has been a lot of talk on Wall Street about a new international agreement (Mar-A-Lago Accord) that may aim, among other things, to lower the value of the US dollar. The name of this agreement is a direct allusion to a similar agreement from 1985 concluded in New York at the Plaza Hotel - hence the colloquial name of that agreement, the Plaza Accord.
The success of the 1985 Plaza Accord in the form of the dollar depreciation and achieving relative stability in currency markets was based on cooperation between the major Western countries. Then, until 2001, investors did not need gold as the hedge… so the gold underperformed.
The chances for such cooperation today are very limited… which may additionally support gold as today investors feel the need for some protection/hedge – see Figure 2.
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