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Escalation In Ukraine Boosts Demand For Safe Haven Flows To Gold

Derek Wolfe

Updated: March 23, 2022

Gold troy ounce
Editor’s Note:

EDITOR'S NOTE: The fighting in Ukraine and the responsive sanctions levied against Russia are likely to sustain the current commodity surge. Hence, we’re seeing increased inflows toward safe haven gold. Yet the market has proven itself to be capricious; its zig-zag volatility, triggered by near-term shocks that may, or may not, hold any real significance over the long-term horizon. Case in point: last week, a combination of talks in Eastern Europe and rate hikes in the US caused gold to drop over 3%. It didn’t take very long for gold’s bearish turn to reverse, as fighting in Ukraine resumed and doubts about the Fed’s capacity to suppress inflation began resurfacing. There’s more to it, of course, as a large number of commodities and their “intermarket” relationships, one triggering movement in the other, are at play. The article below breaks some of this down. If anything, it presents a general view of the moving parts that make up this confusing global economic landscape.

  • Spot gold rose 0.5% to $1,931.16 per ounce by 1:51 p.m. ET (1751 GMT).
  • U.S. gold futures for April settled mostly unchanged at $1,929.50.

Gold prices rose on Monday as fighting in Ukraine boosted demand for safe-haven bullion, while investors kept a close tab on Moscow-Kyiv peace talks.

Spot gold rose 0.5% to $1,931.16 per ounce by 1:51 p.m. ET (1751 GMT). U.S. gold futures for April settled mostly unchanged at $1,929.50.

“Another escalation around Ukraine will drive significant safe haven flows to gold, even inflation hedge moves if we see sanctions that trigger another commodity surge,” said Craig Erlam, senior market analyst at OANDA.

Russia and Ukraine were nearing agreement on “critical” issues, Turkey’s foreign minister said on Sunday, but demand for riskier assets retreated and oil prices climbed as fighting continued.

While rumors of a potential compromise over the weekend brought gold prices down from their highs, the “next launching pad for gold would be the $1,900 area,” said Rob Lutts, chief investment officer at Cabot Wealth Management.

Last week, gold shed more than 3% on hopes for progress in the talks and a U.S. interest rate hike.

Atlanta Federal Reserve Bank President Raphael Bostic said on Monday he was open to a more aggressive policy tightening, while penciling in six rate hikes for 2022.

The market implies a 50-50 chance of a half point hike in May and an even greater chance by June.

“Even if the Fed’s upper estimates of rate raises become reality, inflation will still be ahead, and real interest rates negative, maintaining a positive environment for gold in the medium term,” analysts at Heraeus precious metals wrote in a note.

Spot silver rose 0.8% to $25.15, platinum was up 1.7% at $1,038.98, while palladium rose 3.2% to $2,569.68.

The Ukraine conflict coupled with COVID-related restrictions in semiconductor fabrication hubs in China could hurt automotive demand for metals such as palladium, used as an autocatalyst in vehicle exhausts to curb emissions, Heraeus added.

Originally published on CNBC.

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