Has gold delivered as a geopolitical hedge?

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{JSON.stringify(article.attachments[0], null, 2)} –>Gold is often viewed as the ultimate safe-haven asset, expected to rally whenever geopolitical tensions rise. For South African investors, however, the outcome is shaped by two variables: the international gold price and the rand-US dollar exchange rate. Rand weakness can enhance local currency returns even when the dollar gold price is subdued, while rand strength can offset gains in bullion.

12 Oct 2026 Dive Deeper Speed Read Listen Dive Deeper Despite conflict in the Middle East, global trade fragmentation and intensifying great-power competition over the past year, gold has offered less protection than investors might have expected. At around $4,200 an ounce, it is below its level of $4,320 at the start of 2026 and broadly unchanged from a year ago. The Caldara & Iacoviello Index, which measures the frequency of geopolitical-risk articles in the press over a 30-day moving average, illustrates the disconnect: 100 represents the long-run average and 200 signals extreme stress.

The primary reason is that geopolitical events do not operate in isolation. They may trigger an initial burst of safe-haven buying, but gold ultimately trades within a broader macroeconomic framework. One of the components of that framework is the price of gold at the time of the crisis. The gold price had peaked on 28 Jan 2026, a long time before the world had inkling of the impending crisis in the Middle East driven by a series of other macro factors. This was potentially one of the reasons that as the Geopolitical Risk Index peaked at 31 March 2026, the gold price did not move higher.

In the current environment, rising real (the interest rate that you receive less the rate of inflation) interest rates, particularly in the US and other developed markets, and a stronger US dollar have exerted more influence on the gold price than geopolitical concerns. Because gold generates no income, its relative appeal declines when investors can earn attractive real returns from government bonds. A strong dollar also provides an alternative safe-haven and reduces demand for gold from non-US buyers. For South African investors, this creates an important opportunity-cost decision: gold exposure must be assessed against global bonds, offshore equities, cash and other assets that may offer income or capital growth.

Graph 2: 10-Year Real Yields and Global Gold EFT Holdings

Investor positioning has also contributed to the weakness. During the strong rally in 2024 and early 2025, physically backed gold ETFs attracted significant inflows and became an important driver of price appreciation. As the gold price momentum faded, those same vehicles became a source of selling pressure. ETFs saw large redemptions in March (~2% of total holdings redeemed) despite an elevated period of geopolitical uncertainty. A suggested reason is that many investors sold their gold ETFs, utilising the prior strong period of strong price performance, to access much needed liquidity as global equity markets sold off in the face of increased geopolitical uncertainty. With approximately $420 billion held across the largest physically backed gold ETFs, changes in global sentiment can materially influence price direction. Subsequent to the significant March redemptions, ETF flows have turned positive and total holdings at the end of September are now back at the February 2026 high. For South African investors using offshore ETFs or locally listed gold instruments, this liquidity is useful, but it also means that exposure can be vulnerable to rapid global reallocations.

Global ETF flows should therefore be monitored alongside real yields, the US dollar and geopolitical-risk measures when assessing the outlook for gold.

A second possible reason gold has not performed as expected is that one of its recent structural supports – central bank demand – has been weaker in the first quarter of calendar year 2026. Central bank purchases have averaged ~1,000t per annum in the last 4 calendar years. In the 1Q26 central bank purchases fell to 60kt as selected central banks (Turkey sold ~70kt and Russia and Azerbajan sold 22kt each) liquidated significant gold holdings.

Central banks understandably tend not to disclose their gold trading activity in real time, so the data is imperfect. Even so, they remain significant buyers as countries such as China diversify reserves away from the US dollar. Post the 1Q26 sell down, Central bank buying recovered strongly to ~290kt in 2Q26 with initial evidence indicating this trend has continued into 3Q26. For portfolio construction, central bank demand is likely to provide a long-term floor under the market, but it should not be relied upon as the sole catalyst for sustained returns.

The behaviour of physical buyers in Asia further highlights the changing nature of gold demand. India and China remain the world’s two largest gold-consuming markets, but both have become increasingly price sensitive. In India, record prices have sharply reduced jewellery consumption, particularly among households that traditionally buy gold for weddings and cultural events. Although total spending has remained relatively robust because of higher prices, the actual volume purchased has declined significantly. Weaker physical demand can limit the upside created by financial-market or geopolitical buying and therefore matters to the return outlook for South African holders.

In China, gold continues to be viewed as a trusted store of wealth, particularly amid concerns about the property market, equity market and broader economic uncertainty. Consumers are nevertheless buying smaller quantities, while institutional investors and exchange-traded products are becoming more important sources of demand. This shift matters because investment demand is generally more sensitive than jewellery demand to real yields, currencies and market momentum. Gold is therefore increasingly influenced by many of the same forces driving other financial assets, reducing the case for viewing it as a stand-alone answer to portfolio risk.

Gold has not lost its long-term role as a store of value nor its ability to benefit from periods of uncertainty. Rather, the current environment demonstrates that macroeconomic variables dominate short-term pricing. Rising real yields, a resilient dollar, ETF outflows and more price-sensitive physical demand have diluted the impact of geopolitical risk. In a South African portfolio, gold can still provide diversification and some protection against rand weakness, but its behaviour should be assessed alongside offshore equities, global bonds, cash and other diversifying assets. The portfolio benefit depends on the combination of exposures, not on gold in isolation.

At Laurium Capital, our key takeaway is that gold tends to be most effective as a geopolitical hedge when the macroeconomic backdrop is supportive. Falling real interest rates, a weaker US dollar and accommodative monetary policy have historically created favourable conditions for gold. Those conditions are largely absent today. Geopolitical tensions may still generate temporary spikes in demand, but they have not been sufficient to overcome the larger headwinds from higher global interest rates and a stronger US$ currency. For South African investors, gold is therefore best viewed as one component of a diversified portfolio rather than a guaranteed crisis hedge. Position size, valuation, the rand–dollar exchange rate, the method of gaining exposure and the opportunity cost relative to income-producing assets should all inform the allocation decision. DM

Laurium Capital is an authorised financial services provider (FSP 34142). This article is published for information purposes and does not constitute financial advice. Past performance is not necessarily a guide to future performance. Investors should consider their individual circumstances and seek appropriate professional advice.