In the just published Gold Market Commentary, the World Gold Council (WGC) focused on Election fever! 2024 is peppered with political event risk as important elections line up in a more divisive world. Some of these elections have cross-border implications, increasing the overlap between politics and geopolitics, and that matters to investors.
As we have noted previously, geopolitical risk seems to have a significant impact on gold prices. But this is not just via the investment channel. Anecdotally in 2023, gold holders – in the Middle East and Europe in particular − were less willing to give up their gold in the face of high prices and economic distress.
Adding the geopolitical risk index (GPR) to an equation for global recycling suggests it adds a significant restraint to supply from this sector. We estimate the reduction in recycling to have been between 30 and 70 tonnes in 2023. It seems therefore that geopolitical risk matters – broadly – and prompts us to keep a keen eye on elections over the next few months as we gauge what they could mean for gold.
March should have seen two notable elections in Ukraine and Iran. But Ukraine, still under martial law, cancelled theirs. Iran’s parliamentary vote – for two legislative bodies – is likely to usher in little change in a country where voter antipathy is high. But one of these bodies might prove pivotal, both inside and outside Iran.
The Assembly of Experts has one important job – to choose a new Supreme Leader. At a ripe 84, Khamenei’s secession is probably nigh. The elections on 1 March may not reveal much on the day but they could carry consequences later, because:
1: Iran is the sixth largest buyer of jewellery, bar and coin,
2: Khamenei is a known quantity and a successor may bring further uncertainty to a region already mired in it.
3: Iran is reportedly reluctant to directly involve itself in the issues currently taking place in the Middle East, but actions of proxy militias raise the risk that it will be drawn in. As the third largest producer of oil in OPEC+ it carries a latent marginal risk to the global price of oil and consequent inflationary and geopolitical repercussions.