Do geopolitical risks from the economic powers dominate world gold return? Evidence from the quantile connectedness approach

The nexus between gold return and geopolitical risks such as war, terrorism, and tensions between countries is documented in the literature. However, it appears that the difference between these effects during the period of low, moderate, and high geopolitical risks has largely been ignored. This study aims to fill this gap by using the quantile connectedness approach for the data from January 1985 to April 2022, which covers the period of the ongoing Russo-Ukrainian conflict to examine the influence of geopolitical risks of the world’s economic powers on global gold return. These countries are China, Germany, India, Japan, Russia, the UK, and the USA, which account for nearly 60% of the global GDP. Some key findings are found as follows. First, the study finds that the geopolitical risks of the seven economic powers in the sample significantly explain over 70% of the fluctuation of world gold return in periods of extremely high levels of geopolitical risks. However, the influence of these countries' geopolitical risks is relatively low during normal periods. Second, the findings indicate that each economic power’s geopolitical risks exert a heterogeneous effect on world gold return. These findings provide important guidelines for investors in portfolio management and governments in predicting the trend of the gold market.