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Geopolitical risk and gold price bubbles

Author

Listed:
  • Haonan Zhou
  • Chao Liang

Abstract

Purpose - This study aims to investigate the relationship between geopolitical risk (GPR) and gold price bubbles to determine whether rising GPR can drive deviations in the fundamental value of gold, thus leading to speculative bubbles. Design/methodology/approach - Using a data set that spans from January 2002 to December 2023 and covers both GPR data and gold price data, this study applies the log-periodic power law singularity (LPPLS) model to identify gold price bubbles. The analysis explores the effects of GPR and its sub-indices – geopolitical risk–acts (GPRA) and geopolitical risk–threats (GPRT) – on gold price bubbles. The causal relationships are examined through logistic regression, Tobit modelling and machine learning, with a focus on different countries, including major gold producers and consumers. Findings - The results indicate a significant relationship between GPR and gold price bubbles, particularly with GPRA, which exerts a stronger influence than GPRT does. Peaks in GPR often align with the formation of gold price bubbles, both positive and negative. Additionally, geopolitical instability in Russia has a significant effect on US gold price bubbles. Practical implications - The findings provide valuable insights for investors and policymakers by emphasizing the importance of GPR in shaping gold price dynamics. Investors are advised to consider the nuanced roles of GPRA and GPRT when using gold as a hedge during periods of heightened geopolitical tension. Social implications - Understanding the role of GPR in gold price bubbles can help mitigate the financial risk associated with speculative bubbles, thereby offering a better framework for managing assets during geopolitical crises. Originality/value - This study extends existing research by directly linking GPR with gold price bubbles via the LPPLS model, with a novel emphasis on the differentiation between GPRA and GPRT, providing new perspectives on the safe-haven role of gold during geopolitical uncertainty.

Suggested Citation

  • Haonan Zhou & Chao Liang, 2025. "Geopolitical risk and gold price bubbles," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 24(3), pages 353-374, March.
    • Handle: RePEc:eme:rafpps:raf-09-2024-0369
    DOI: 10.1108/RAF-09-2024-0369
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    More about this item

    Keywords

    Geopolitical risk; Gold; Price bubble; LPPLS model; C13; C51; C58; F52; G15; Q02;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • F52 - International Economics - - International Relations, National Security, and International Political Economy - - - National Security; Economic Nationalism
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market

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