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The Golden Surge: Unpacking the Reasons Behind Gold’s Recent Price Increase

James Chapman May 06, 2024

January 2022 turned out to be a very volatile month and one of the worst Januarys we’ve seen in a long time. The volatility was brought on by several factors, but one that we wish to highlight is rising geopolitical tensions. Russia’s military presence around the Ukraine appears to be escalating and conflict between China and Taiwan has not eased either. As investors, what should we make of these geopolitical tensions?

One thing we do know is that geopolitical tensions and risks are constantly with us. Think back to the last several years and we’ve been faced with cyber wars, tensions in the Middle East, North Korean missile tests, terrorist attacks, and many others. If we let every conflict or threat of conflict affect the way we invested, it would be tough to ever be invested in equities as there always seems to be a risk.

While it’s tough to know exactly how the market would react if one of these risks came to be, we can look at history to see how the market has done during past geopolitical events. The chart below looks at every geopolitical event going back to World War II. While the severity of market drawdowns varies in depth and duration, we can take solace in the fact that, for the most part, markets usually take them in stride. On average, the total drawdown from a geopolitical event occurring is 4.6% and lasts an average of 19.7 days.

This is not meant to make light of the impact these events may have on the people affected. However, as investors, we must weigh the economic and financial impact of each event as they occur and respond accordingly. While every event in the future will be different from the past, it is helpful to understand just how markets have behaved. With a strong economy, growing corporate earnings, and strong consumer balance sheets we believe that the market will be able to handle a shock in stride. That said, as always, when the facts change so will our perspectives.

James Chapman

disclosure

THIS COMMENTARY HAS BEEN PREPARED BY CLEARWATER CAPITAL PARTNERS. THE OPINIONS VOICED IN THIS MATERIAL ARE FOR GENERAL INFORMATION ONLY AND ARE NOT INTENDED TO PROVIDE OR BE CONSTRUED AS PROVIDING LEGAL, ACCOUNTING, OR SPECIFIC INVESTMENT ADVICE OR RECOMMENDATIONS FOR ANY INDIVIDUAL. ALL ECONOMIC DATA IS DERIVED FROM PUBLIC SOURCES BELIEVED TO BE RELIABLE. TO DETERMINE WHICH INVESTMENTS MAY BE APPROPRIATE FOR YOU, PLEASE CONSULT WITH US PRIOR TO INVESTING. INVESTING INVOLVES RISK WHICH MAY INCLUDE LOSS OF PRINCIPAL.

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities, insurance products, or to adopt any investment strategy. The opinions expressed are as of the date of writing and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed by Clearwater Capital Partners to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. Past performance is no guarantee of future results. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader. Investment involves risks. International investing involves additional risks, including risks related to foreign currency, limited liquidity, less government regulation and the possibility of substantial volatility due to adverse political, economic or other developments. Index performance is shown for illustrative purposes only. You cannot invest directly in an index. S&P 500 is a registered trademark of Standard & Poor’s Financial Services, a division of S&P Global (“S&P”)  DOW JONES, DJ, DJIA and DOW JONES INDUSTRIAL AVERAGE are registered trademarks of Dow Jones Trademark Holdings (“Dow Jones”). The two main risks related to fixed-income investing are interest rate risk and credit risk. Typically, when interest rates rise, there is a corresponding decline in the market value of bonds. Credit risk refers to the possibility that the issuer of the bond will not be able to make principal and interest payments.

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