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Geopolitical Risk: The New Normal

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Over the last year, we’ve talked a lot about geopolitical risk. Could turmoil around the world now be the new normal?

Some analysts think so.

The focus has primarily been on tensions between the US and North Korea in recent months. But there have been plenty of other risk factors popping up around the world, including ongoing uncertainty about Brexit, the secession movement in Catalonia, continued fighting in the Middle East, terror attacks,  tensions between the US and Russia, various elections, a coup in Zimbabwe, and more.  On top of that, outside of the US, a lot of people think Americans should be looking at the geopolitical risks right here at home due to political divisions and uncertainty in Washington D.C.

Historically, geopolitical turmoil is good for the yellow metal. Investors buy gold as a hedge to protect themselves against such risk. But safe-haven buying tends to ebb and flow with the tides of uncertainty. Events spur panic for a period of time and then things return to normal. But some analysts now believe geopolitical uncertainty may be the new normal.

According to a CNBC report, Citi analysts take this position, saying the new normal of geopolitical risk will likely boost gold prices in coming years.

The geopolitical case for gold investment has been emboldened in recent months and it seems as strong today than at any point over the last four decades, Citi analysts said. As a result, gold prices were forecast to ‘push north of $1,400 per ounce for sustained periods’ through to 2020.”

Citi analysts pointed to elections and political votes, military attacks, and macroeconomic crises as factors likely to drive gold investment over the next several years.

Event-driven bids for gold seem to be occurring more frequently and may be the new normal… In short, even as the rates and forex channel dominate the outlook for gold pricing, the yellow metal is increasingly being used by investors as a policy and tail risk hedge.”

While we can’t predict what specific events will unfold in the coming months and years, one thing seems certain – uncertainty.

In times of uncertainty, gold is the safe place to go. We see evidence of this with virtually every unsettling news event. But seeking a safe haven after the fact doesn’t really make a whole lot of sense. You don’t go into the cellar after the tornado. You don’t evacuate after the hurricane. You need to establish your safe-haven before calamity strikes.

That’s some food for thought in these uncertain times.

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