• Price of gold could push above $2,000 if the Russia-Ukraine premium remains
  • Gold’s role as a diversifier was underlined by the fall in most other asset values
  • Rising yields fail to dampen confidence in and value of gold exchange-traded funds (ETFs)

Dubai, UAE: Invesco’s investment strategists suggest that geopolitical tensions during the first months of 2022 and the subsequent war in Ukraine supported the price of gold despite rising bond yields bucking the historic relationship between gold and real yields.

Bloomberg data shows that gold had climbed from $1,829 at the end of 2021 to $1,937 by the end of the first quarter of 2022, a gain of 6%. That may seem modest but the value of most other assets declined during that period (for example, the S&P 500 index declined by 5%). Even better, so-called “safe-haven” buying pushed gold as high as $2,051 on 8 March, as Russia’s invasion of Ukraine perturbed financial markets. This shows once again the diversifying qualities of gold.

Data from the World Gold Council[1] also shows that net inflows of global gold ETFs reached 187.3 tons, or $11.8 billion in March, bringing total value of assets under management to $239.7 billion - just below the record of $240.3 billion set in August 2020. This growth comes despite a rise in real yields, which represent the opportunity cost of holding gold.  

Paul Jackson, Invesco’s Global Head of Asset Allocation Research said: “When we see a rise in yields, we typically expect to see the price of gold fall, but something quite unusual is happening. We think there are two possible explanations: first, Russia’s invasion of Ukraine has perhaps added a geopolitical risk premium to the price of gold and, second, gold’s behaviour in relation to inflation may be changing (returning to a positive correlation after the inverse relationship that has existed since the global financial crisis).”

Invesco’s experts reiterate that considering gold as part of a portfolio diversification strategy is more important now than ever, as investors face volatility and uncertainty in the current environment with several factors at play.  How central banks rollout policy tightening measures and rate hike expectations, fueled by higher-than-expected inflation, could be a fundamental driver of gold price for the remainder of the year. 

“Historically, we have considered the best environment for gold to be US recession, as that would reduce real bond yields and weaken the US dollar.  Our model suggests that such an outcome could push gold above $2,000 and probably higher if the Russia-Ukraine risk premium remains,” said Jackson.

Given that Bitcoin are often described as “digital gold,” investors seem eager to assume Bitcoin has many of the same characteristics as this precious metal.  However, Invesco’s experts do not expect Bitcoin or cryptocurrencies to be a hedge against geopolitical risks going forward. Jackson explained: “Many investors may consider that cryptocurrencies could also offer mitigation against extreme economic outcomes, thus viewing them as performing the same role as gold within a portfolio.  However, we would point out that they are highly volatile (Bitcoin fell from $67,734 to $35,364 in little more than two months to 23 January 2022) and they recently seem to behave more like high-beta versions of equities, rather than offering diversification.”

Gold ETFs have attracted record inflows as gold price performance gets support from rising inflation fears, geopolitics and market volatility.

Dr. Christopher Mellor, Head of EMEA ETF Equity & Commodity Product Management at Invesco said: “The combination of conflict in Europe, Fed rises, record oil prices, and soaring inflation have created a historically unusual economic picture. Not only are gold prices experiencing a surge, but gold-backed ETFs account for a rapidly growing part of the gold market, with institutional and individual investors using them to implement many of their investment strategies.”

Dr. Mellor continued: “The growing popularity of gold as a safe haven is reflected in the way that investors are looking for diversity and opportunity in gold ETFs, which are easy to buy and sell. Invesco works with mining companies, the World Gold Council and the LBMA (London Bullion Market Association) to encourage high standards, and 100% of Invesco holdings are in accordance with responsible gold guidance.”


Zeeshan Masud, Weber Shandwick
Suzanne Bader, Weber Shandwick
E:  SBader@webershandwick.com

About Invesco

Invesco is an independent investment management firm dedicated to delivering an investment experience that helps people get more out of life. NYSE: IVZ; www.invesco.com.

Investment Risks

The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.

Important Information

This document is for trade press only and is not for consumer use.

By accepting this material, you consent to communicate with us in English, unless you inform us otherwise.

Where individuals or the business have expressed opinions, they are based on current market conditions, they may differ from those of other investment professionals and are subject to change without notice.

This is marketing material and not intended as a recommendation to buy or sell any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication.

This document is issued by Invesco Asset Management Limited, PO Box 506599, DIFC Precinct Building No.4, Level 3, Office 305, Dubai, United Arab Emirates. Regulated by the Dubai Financial Services Authority.

[1] World Gold Council as of 6 April 2022