A new perspective on gold as a risk hedge: Long-term impacts of bilateral political tensions between the U.S. and China

Based on the GARCH-MIDAS model, this study systematically examines the impact of U.S.-China geopolitical tensions on the volatility of the spot gold market. By introducing a monthly U.S.-China tension index (UCT), we quantify the explanatory power of bilateral geopolitical friction on long-term volatility in the gold market. Empirical results indicate that the gold market exhibits significant volatility clustering, and the UCT significantly amplifies long-term volatility. This reflects the fact that rising geopolitical tensions trigger risk-averse behavior in the market, driving capital reallocation toward safe-haven assets, such as gold. After incorporating monthly realized volatility (RV) as a control variable, the UCT remains statistically significant, further validating its independent information-additive value. Out-of-sample forecasting results indicate that the two-factor model, including UCT and RV, outperforms the single-factor model in volatility forecasting, with stronger predictive capability and greater stability. This study validates the need to incorporate the gold market into a systemic risk monitoring and early warning system centered on geopolitical risk. It proposes it as an important reference indicator for macroprudential regulation.