After months of simmering beneath the surface, geopolitical surrounding the Korean Peninsula flared yet again last week.
Market volatility spiked, as did the gold price, a scenario often seen when uncertainty towards the future becomes a little more opaque than usual.
However, while the escalation in the war of words between Donald Trump and Pyongyang delivered a short-term flutter across markets, history suggests that even a substantial spike in financial market volatility may not necessarily translate to further gains in the gold price.
This chart from the Commonwealth Bank explains why.
It overlays the spot gold price against movements in the CBOE VIX Index, a measure of expected volatility in US stocks looking one month ahead, over the past decade.
As it reveals, past spikes in volatility has not always led to strength in gold prices.
Sometimes it has, others it hasn’t, as explained by Vivek Dhar, mining and energy commodities analyst at the Commonwealth Bank.
“The reliability of safe haven demand translating through to higher gold prices is not consistent,” says Dhar.
“The last 4 major spikes in VIX have had mixed results on gold prices, with the largest spike in 2008 — the Lehman Brothers collapse — actually pushing gold prices lower.”
Rather than expected stock market volatility, Dhar says that movements in real (inflation-adjusted) US 10-year bond yields remains a key underlying driver of gold prices at present.
“Gold prices and US 10-year real yields have historically had a tight inverse relationship,” he says. “Lower yields increased the appeal of non-US interest bearing assets like gold.”
Dhar says that this relationship will continue to hold, noting that further US interest rate increases will drive yields higher, placing additional downside pressure on gold prices.
NOW WATCH: Money & Markets videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.