In recent weeks, several geopolitical events have heightened concerns in the capital markets regarding the risks associated with such occurrencesThe surge in uncertainty has led investors to actively seek out safe-haven assets, resulting in a remarkable spike in international gold pricesOn May 20, both spot gold (XAU) and COMEX gold prices surpassed $2,440 per ounce, signaling significant movements in the global marketsIn China, the enthusiasm for gold-related Exchange-Traded Funds (ETFs) was palpable, with multiple ETFs witnessing increases of over 5%, while other themes—such as non-ferrous metals and mining—saw gains exceeding 3%.

Geopolitical conflicts have historically served as sensitive indicators for capital flows

With the ongoing trend of risk aversion, resource-based ETFs—including those focused on gold and non-ferrous metals—have yielded commendable returns this yearAs these commodities reach new heights amidst global uncertainties, many are left wondering whether investing in such ETFs remains a sound strategy.

The sentiment of risk aversion has been further amplified following a series of significant geopolitical events throughout the year, each contributing to mounting tension in the financial landscapeFor example, after the unfortunate aircraft crash in Iran, global gold prices exhibited another surge, with spot gold surpassing $2,440 per ounce and COMEX gold briefly exceeding $2,450 per ounceNot to be left behind, COMEX silver also hit new highs, reaching levels upwards of $32.75 per ounce.

In the Chinese market, investors demonstrated marked interest in resource-related ETFs, with data from May 20 showing several gold stock ETFs soaring over 5%, accompanied by various non-ferrous metal-focused ETFs climbing over 3%. The mining, coal, and energy sectors also saw substantial hikes.

According to financial analyst Bi Mengnan from Grayscale Wealth Management, the traditional safe-haven assets of gold and silver are responding positively to the increased geopolitical tensions in the Middle East, thus triggering greater investor interest in these assets

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In addition, she pointed out that the recently released inflation data from the U.Sindicated a downward trend in inflation, which has increased expectations for a potential interest rate cut by the Federal Reserve—another factor favoring precious metals.

However, following a brief boom, these resource-focused ETFs experienced a retreat on May 21. Bi Mengnan noted that the performance of these ETFs on May 20 reflected strong risk aversion demand, but the subsequent cooldown showcased the market's quick shift in preference.

Continuing the discussion, Han Wei, Managing Director at Tais Investment, pointed out that market speculations inevitably increase tension, causing funds to flow towards safer assets like gold and silver

He noted that while May 20 saw many gold and non-ferrous ETFs surge, it also indicated an overreaction of market sentiments, and the future direction of the market hinges heavily on the investigation into the recent incidents.

Despite the significant increase in COMEX gold prices since the beginning of the year, observers have taken note that this is not a uniform or straightforward climbAs of May 21, the price of gold has experienced three significant rallies over the past few months: from early March to mid-March, from late March to early April, and from early May until now.

A fund manager stated that gold prices typically move in waves, rather than experiencing a steady climb

Historical trends reveal that gold has also undergone extended periods of stagnation in its price movements.

Assessing the risk of retracement is crucialEach major geopolitical event triggers a spike in capital market risk aversion, drawing more funds into gold and other resource-focused ETFsHowever, industry insiders argue that geopolitical situations are not the sole factors driving price increases in these assets.

Liu Tingyu, a manager at Yongying Fund, posits that while geopolitical incidents have recently expedited gold's price increases, they are merely catalystsThe persistent recovery in gold prices over the past couple of weeks can be attributed more significantly to their monetary and financial attributes

Specifically, the market's expectations for an early interest rate cut are deemed the primary driver behind the current uptrend in gold prices.

Furthermore, Bi Mengnan remarked that these resource-based ETFs are predominantly cyclical stocks, indicating that not only geopolitics but also the broader economic cycle influence their performance.

She further analyzed: "In the context of a recovering economic environment, resource-related cyclical ETFs are likely to outperform, particularly for precious metals, oil, and petrochemical energy ETFsCurrently, many major economies around the world are entering recovery phases, amplifying demand for metalsMoreover, the onset of a rate-cutting cycle by the Federal Reserve significantly impacts the prices of resource ETFs

April's CPI data showed a year-on-year and month-on-month decline, cooling inflation expectationsAccording to CME predictions, the market is beginning to expect a rate cut from the Fed, which positively influences precious metal ETFs within the resource categoryFinally, increased geopolitical risks do add pressure to these ETFs’ prices, but their impact relative to other factors is limited in magnitude and duration."

As of May 21, data from Choice indicates that two gold stock ETFs have seen over a 30% increase year-to-date, while one non-ferrous ETF surpassed a 20% increase, with a multitude of gold ETFs experiencing gains over 15% this yearWhen compared to last year, both performance metrics and overall activity of resource-related ETFs have greatly improved thus far