In recent weeks, the unexpected events in Iran have raised concerns in global financial markets regarding geopolitical risks, leading investors to actively seek safe-haven assets, particularly pushing gold prices to new heightsOn May 20, both spot gold (XAU) and COMEX gold broke through the $2,440 per ounce mark, while in the Chinese market, multiple gold-related ETFs surged over 5%, with various metals and mining sector ETFs rising over 3%.
Geopolitical conflicts have always been a sensitive point for investors' capital allocationsThe current surge in resource-related ETFs, including those focused on gold and metals, has raised questions about the sustainability of this upward trendAre investors still wise to allocate their capital to these types of ETFs in this environment?
As this year has seen a number of major geopolitical events unfold, the desire for financial security among investors has intensified
For instance, in the wake of a tragic plane crash in Iran, gold prices surged again on the first trading day following the incident, with spot gold climbing above $2,440 per ounce and COMEX gold reaching above $2,450 per ounceAdditionally, the price of COMEX silver also hit new highs, reaching $32.75 per ounce.
Specifically in the Chinese market, there has been a noticeable shift towards resource-related ETFsData from May 20 showed that several gold stock ETFs experienced gains exceeding 5%, while a number of metal-focused ETFs rose over 3%. This behavior indicates a clear preference for safe-haven assets among investors.
According to analyst Bi Mengnian from GeShang Wealth, gold and silver—with their traditional roles as protective assets—have seen notable price increasesThe recent incident in Iran has escalated tensions in the Middle East, triggering uncertainty in the markets and prompting a flight towards safe-haven assets
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Furthermore, she notes that the latest inflation data from the United States, released in April, shows inflation on a downward trajectory, raising expectations for rate cuts by the Federal Reserve, which also bodes well for precious metals.
However, following this initial surge in relevant ETFs, the market saw a pullback on May 21. Bi Mengnian observed that, while many metal-related ETFs opened higher, fluctuations in market sentiment reflected a rapidly changing atmosphere, suggesting that the initial safety-seeking behavior had dissipated somewhat.
Han Wei, Managing Director at Taisi Investment, explained that various speculations in the market have contributed to heightened tensions, naturally directing funds towards safe assets like gold and silverAlthough the substantial rises seen on May 20 reflect a peak in risk aversion, he emphasizes that the ultimate direction of the market will depend heavily on the outcomes of investigations into the recent geopolitical upheaval.
Despite evident increases in COMEX gold prices since the beginning of the year, the ascent has not been linear
By May 21, there had been three pronounced surges—in early March, late March to early April, and from early May onwardAs one fund manager noted, gold prices typically follow a more cyclical pattern rather than an abrupt upward spike, having previously endured extended periods of sideways movement.
Every time significant geopolitical events arise, market sentiment tends to shift towards risk aversion, causing resource-related ETFs to attract substantial capital flowsHowever, some industry experts argue that such events are not the sole catalysts for price increases in these assetsLiu Tingyu, manager at Yongying Fund, stated that geopolitical incidents serve mainly as catalysts for the recent increase in gold pricesThe sustained recovery over the previous two weeks can be attributed more to the metal's monetary and financial characteristics rather than to geopolitical developments
He emphasized that the market's anticipation for an expedited timeline for interest rate cuts was the primary driver behind the latest gold rally.
Bi Mengnian further explained that resource ETFs are more closely tied to cyclical stocks, meaning that economic cycles also significantly influence their pricesIn a recovering economic environment, cyclical resource ETFs tend to perform better, particularly those related to metals and energy sectors such as oil and petrochemicalsCurrently, as major economies worldwide are in recovery phases, there is an increased demand for metalsAdditionally, the Federal Reserve's anticipated rate cut cycle is likely to impact prices of these resource ETFs, including precious metals, favorablyShe pointed out that while geopolitical factors do play a role in driving up resource prices, their influence tends to be limited in both magnitude and duration compared to other economic factors.
According to data from Choice, as of May 21, two gold stock ETFs had seen year-to-date gains exceeding 30%, and one metal-focused ETF reported rises over 20%. Many gold ETFs have experienced gains of over 15%. Compared to last year, the performance of several resource ETFs has been notably more robust this year