China's War Games: Seeking Safety in Gold During Turbulent Times

Let’s not delude ourselves when it comes to geopolitical risk heading into 2025. Yes, Israel and Hezbollah recently reached a ceasefire agreement, but geopolitical risks remain high as there’s been a hell of a lot of rocket fire and deaths since the deal took effect as each side claims violations and seeks revenge. And, yes, the re-election of Donald Trump brings an air of positivity about the Russia-Ukraine war, thanks to Trump’s pre-election declaration of a near-instant end to that conflict once he takes the reins. There is a lot still to play out in that respect, but if Trump can play a role in ending the war in Ukraine, it seems very likely that it will involve a deal that grants Russia some of Ukraine’s territory. This situation underscores the complexities of international relations and their potential to reshape the global economy. If that happens, it’s a green light to other rising world powers that the world order largely upheld since the end of World War 2 is crumbling, and national borders and sovereignty can be challenged.

The South China Sea is another significant geopolitical hotspot where escalating tensions and military presence, particularly from China, contribute to political risks and uncertainties. Now, the ever-present worry of an attempt by China to invade and reclaim Taiwan has risen to the surface amid China’s war games that recently took place in the waters and airspace around Taiwan. Taiwan’s Ministry of National Defence said that China deployed 125 military aircraft during the exercises, and 90 aircraft, including warplanes, helicopters and drones, were detected inside Taiwan’s air defence identification zone. The drills are “focusing on subjects of sea-air combat-readiness patrol, blockade on key ports and areas”, said Captain Li Xi, spokesman for the Chinese military’s Eastern Theater Command. Military expert Zhang Chi of China’s National Defence University told state-backed newspaper Global Times, “The People’s Liberation Army wants to prove that we have the ability to block the import of energy resources for Taiwan, thereby having an important impact on the economy and society”. China, which claims democratically governed Taiwan as its own territory, appears to be sending a signal to Taiwan independence forces following their President’s recent reiteration that China has no right to represent Taiwan. The Taiwan Strait remains a critical flashpoint in these tensions.

As we wrote yesterday, China’s central bank has started to increase its gold reserves again as a trade war with the United States appears on its horizon. Many other countries have also increased their holdings of gold over the past years and the current global political and economic risks show no sign of cooling. This trend has significant implications for the private sector and business operations, as companies must navigate these uncertainties. As we close out 2024 and look ahead, gold will again play a vital role as investors seek safety in a turbulent world.