Geopolitical Risk as an Investment Signal: A Dynamic Portfolio Switching Strategy between Equities and Gold

Abstract

This study evaluates a geopolitical risk–guided portfolio switching strategy between gold and equity markets. The results show that portfolios adjusted according to the GPR index outperform conventional buy-and-hold strategies during high-risk periods, particularly in the U.S. market. The findings indicate that lagged geopolitical risk can serve as an effective signal for portfolio allocation by capturing shifts in risk regimes and cross-asset dependence, thereby reinforcing the role of gold as a conditional safe-haven asset. Given these findings, the study offers important policy insights for governments, financial institutions, investors, and other stakeholders. For rapidly developing economies like China, effective crisis response is critical. The results can inform macroeconomic policy adjustments, guide financial institutions in strategic planning, and help investors construct robust portfolios allocation under uncertainty. From a comparative perspective, the experience of developed markets, particularly in relation to gold’s safe-haven role, provides useful lessons for China’s still-developing financial market infrastructure, especially in improving liquidity, price discovery, and market resilience under geopolitical uncertainty.