EDITOR'S NOTE: The fog of economic warfare rolls on. The global implications of the Russia-Ukraine conflict have brought on even more uncertainty to an already unsettling outlook. In the US, what seemed certain just a few weeks ago is now subject to variation, perhaps even a dice roll. Remember the Fed’s James Bullard's recommendation of a full percentage price hike to counter inflationary pressures? Well, the likelihood of even a 50-basis point hike seems to have been slashed in the eyes of Wall Street. US Treasury yields, once rising in anticipation of higher interest rates, have now fallen since the start of the invasion. Crude oil and other commodities continue to soar, triggering a volatile yet net equities market decline. Meanwhile, we’re seeing gold’s highest finish in 13 months accompanied by silver, the industrial-monetary metal, which looks poised to break out of its 5-month slump. Fed Chief Jerome Powell said today that the “The near-term effects on the U.S. economy of the invasion of Ukraine, the ongoing war, the sanctions, and of events to come, remain highly uncertain.” Investors are weighing this against the backdrop of an accelerating inflationary environment and the prospects of global growth which seems to be growing dimmer by the day.
Gold futures climbed sharply on Tuesday to mark their highest finish in 13 months, buoyed by a broad flight to the perceived safety of precious metals and government bonds, as Russian forces continued to shell Kharkiv, Ukraine’s second-largest city, and signaled they would target intelligence and communication facilities in the capital Kyiv.
Russia’s invasion of Ukraine was in its sixth day and has drawn swift and severe financial sanctions from an array of Western nations, which has injected a fresh dose of turbulence in markets.
“Events in Ukraine, following the Russian invasion, continue to dominate the mind-set of investors, offering support to safe-haven assets and supporting gold well above the $1,900 mark,” wrote Ricardo Evangelista, senior analyst at ActivTrades, in a Tuesday note.
April gold GC00, -0.99% GCJ22, -0.99% rose $43.10, or 2.3%, to settle at $1,943.80 an ounce, the highest most-active contract finish since January 2021, FactSet data show. Prices scored a rise of 5.8% in February, the largest since May.
Meanwhile, May silver SIK22, -1.88% climbed 4.8%, or $1.18, to $25.541 an ounce, after ending February with an 8.8% rise. Prices on Tuesday settled at their highest since August.
Investors weighed the implications of the invasion on the outlook for inflation and global growth, as well as how central banks, particularly the Federal Reserve, will respond.
The gains for safe-haven gold also come as the yield on the 10-year Treasury note TMUBMUSD10Y, 1.800% dropped to around 1.68%, compared with 1.836% at 3 p.m. Eastern on Monday.
Gold and silver prices are “finding additional support from falling bond yields, which are further weighing on real yields with inflation continuing to soar,” said Fawad Razaqzada, market analyst at ThinkMarkets. “Bond yields have fallen as prices have recovered on safe-haven flows, and with some investors reducing their expectations about aggressive tightening from central banks.”
The odds of a rate increase of 50 basis points from the Fed has been slashed to less than 5%, he said in a note, while the European Central Bank’s first rate increase expectations have been pushed back to 2023 from December this year.
“Against this backdrop, I am expecting gold to go well north of $2,000,” said Razaqzada.
In addition to bonds and gold, crude-oil prices have shot higher, with West Texas Intermediate oil topping $100 a barrel CL.1, +5.62%, stoking concerns of near-term inflation pressures, which is bullish for bullion.
“It appears unlikely that there will be a solution for the conflict anytime soon, with the probability of an escalation in the intensity of the fighting over the next few days, which could create scope for further spikes in gold prices,” ActivTrades’ Evangelista wrote.
In other Comex dealings, May copper HGK22, +1.16% added 3.2% to $4.597 a pound. April platinum PLJ22, +0.24% rose 1.3% to $1,051.90 an ounce and June palladium PAM22, +1.92% settled at $2,537.80 an ounce, up 1.3%.
Originally posted on Market Watch.