Gold most stable asset during geopolitical tensions, says RBI staff study

An RBI staff study says gold remains the most stable asset during geopolitical stress, while crude oil is the most sensitive to shocks; silver and US Treasuries show intermediate reactions

Gold has emerged as the most stable asset during episodes of geopolitical stress, and crude oil has been more sensitive than others when it comes to regional conflicts and sanctions, according to a report in the Reserve Bank of India’s (RBI’s) monthly bulletin.

 

Silver and the United States Treasury have showed moderate reactions.

 

The report has been authored by RBI staffers with the guidance of Deputy Governor Poonam Gupta. The views in the report are those of the authors and not of the RBI, it was clarified.

 

“The findings show that crude oil is most sensitive to geopolitical shocks, consistent with its exposure to supply disruptions and regional conflicts. In contrast, gold remains the most stable, reaffirming its traditional role as a safe haven asset. Silver lies in between; more volatile than gold due to industrial demand exposure, but less sensitive than oil,” the report said, adding that the recent rally in 2022-25 further reflected investors’ response to systematic uncertainty and global tensions.

 

“Gold’s reputation as a hedge against inflation and a store of value makes it attractive to central banks and institutional investors,” the paper noted.

 

Gold prices remained high this year as investors sought safe-haven assets amid geopolitical tensions and expectations of lower global interest rates.

 

Central banks in emerging markets, including India, have been diversifying their foreign-exchange reserves by increasing gold holdings.

 

The data showed foreign-exchange reserves rose by $1.689 billion to $688.949 billion in the week ended December 12.

 

In the previous reporting week, the reserves had increased by $1.033 billion to $687.26 billion. During the week, foreign-currency assets (FCAs), the largest component of the reserves, rose by $906 million to $557.787 billion.

 

FCAs, expressed in dollars, include the impact of appreciation or depreciation of non-US currencies such as the euro, pound and yen.

 

The value of gold reserves also increased, rising by $758 million to $107.741 billion.

 

According to the study, which tested neural-network models in forecasting the volatility of major asset classes to geopolitical shocks, crude oil emerged as most sensitive to geopolitical shocks.

 

Its price volatility rises sharply with an increased GPR index (geopolitical risk index), reflecting exposure to supply disruptions, regional conflicts, and sanctions, highlighting its vulnerability to geopolitical instability. 

 

On the other hand, gold showed minimal sensitivity, reaffirming its role as a safe haven. They saw that investors often shift to gold during global uncertainties, which stabilises its volatility across risk regimes and supports its continued use in hedging strategies during crises.

 

Silver exhibits intermediate sensitivity. Its volatility responds to investor sentiment and geopolitical effects on industrial demand, placing its sensitivity between gold and crude oil.

 

Meanwhile, US Treasury securities show a steady rise in volatility as geopolitical risk increases. This reflects “flight to safety” behaviour, where demand-driven price changes lower yields but generate moderate market volatility due to shifting capital flows.

 

It added: “US Treasury securities exhibit a steady rise in volatility with increasing geopolitical risk, reflecting their role as a flight-to-safety asset during global stress and confirming the heterogeneous volatility response across assets.”