The essential role of U.S.-China tensions: a fresh insight into the gold market

Understanding the pivotal role of U.S.-China tensions in shaping the dynamics of gold market is crucial for constructing high-performing portfolios. To this end, our study employs both full and sub sample approaches to explore the intricate relationship between the U.S.-China Tension Index (UCT) and gold price (GP). Our quantitative analysis reveals a dual-faceted impact of UCT on GP, which deviates from the inter-temporal capital asset pricing model’s supposition. There are positive effects, suggesting that heightened tensions between the U.S. and China might stimulate a surge in the gold market. Nevertheless, the negative implications challenge this perspective, largely owing to other sources of uncertainty, such as the volatility of U.S. dollar and global financial crises. In turn, GP exerts both beneficial and detrimental effects on UCT, emphasizing that the dynamics of gold market could either amplify or mitigate these tensions, thereby functioning as a warning indicator to a certain degree. Against a canvas of mounting uncertainties in the U.S.-China relations and a skyrocketing trend in gold prices, our research offers insightful recommendations aimed at empowering investors to optimize their returns and guiding policymakers in fostering a more stable economic and political landscape.