One of the headline events of this past week was the World Economic Forum. The Forum, held in the illustrious ski resort town of Davos, Switzerland brings together political, business, and other “leaders” from around the world. They discussed artificial intelligence, global labor markets, happiness and GDP, geopolitical tensions, trade, social tension, and a host of other popular topics.
Perhaps the most interesting topic was posted by Klaus Schwab, the founding member of the World Economic Forum. He posed the question of whether we are in the 4th industrial revolution. Setting aside the never-ending debates about the philosophical aspects of these issues, one question observers should ask is: Does Davos actually matter? Does what happens at Davos influence say the price of gold?
Here’s an answer to the latter question, in Figure 1. The figure is the total gain or decline in the price of gold. As shown, typically gold performs fairly well during the course of the World Economic Forum. On average, up 1.1%.
How does gold typically perform on non-Davos days?
Here’s a comparison of the gold return by Davis days compared with non-Davos days. Fascinatingly, Davos days typically perform better than non-Davis days, and usually by an appreciable amount.
On a daily basis, gold’s average return is 0.03%. During Davos days, the average return is 0.33%. That is an 11 times higher return during Davos days. Utterly fascinating. But why?
Theories on the “Davos Days Effect”
What could be behind the “Davos Days Effect”?
One theory is that the World Economic Forum gives markets a good feeling. News surrounding the World Economic Forum is usually positive, which may have a calming effect on investors. This calming feeling then shows up in demand for financial assets, including the world’s most well-known precious metal – gold.
A competing, polar-opposite view is that the World Economic Forum makes investors nervous, and when investors are nervous they flock to safe assets. And what asset is safer than gold? Virtually nothing. This may be true in cases when the topics of the World Economic Forum, such as dealing with climate change or the potential job losses from artificial intelligence, cause investors to think twice about their demand for risky assets and therefore shift to safer assets.
What is the true “Davos Effect”? Well, no one really knows. What we do know is that the press generally pays attention to what’s going on at Davos, and that information exchange may be influencing financial markets, including the price of gold.