EDITOR'S NOTE: As inflation continued to advance a slow and yet undetermined drag toward safe-haven assets, the Russia-Ukraine war catapulted the yellow metal to over $2,000 an ounce, nearly matching its August 2020 all-time high of $2,089 (when other events triggered a panic toward safety). Mainstream investors are feeling a bit unbalanced. A confusing mix of high inflation, geopolitical risks, and a skeptical faith in, or a genuine fear of, the Fed keeps investors from committing to a course of action. Will the Fed increase the depth of its rate hikes? What effect might that have on inflation’s trajectory? What will the next CPI and PPI reveal, and how might that play into the Fed’s analytical framework? And last but not least, how much more might the new sanctions on Russia further disrupt the energy, metal, and grain supply chain across the globe? There remain lots of questions that will likely go unanswered until a point when it may be too late to respond. At the same time, many investors are forgetting one critical principle: hedging is not about speculating for profit. It’s an attempt to mitigate risk. As simple as that may sound, it’s somewhat ironic to see how investors are allowing uncertainty to get in the way of “hedging uncertainty” by way of safe-haven assets.
Gold futures rose on Thursday, settling at their highest level in about two weeks, as the U.S. announced new sanctions on Russia for its ongoing invasion of Ukraine and investors monitored hawkish remarks by Federal Reserve officials.
Prices for the metal were solidly higher as “marketplace risk aversion remains overall elevated amid the Russia-Ukraine war and its many implications for the world,” said Jim Wyckoff, senior analyst at Kitco.com, in a daily note.
Gold for April delivery GC00, -0.83% GCJ22, -0.83% rose $24.90, or 1.3%, to settle at $1,962.20 an ounce on Comex — at the highest most-active contract settlement since March 11, FactSet data show. May silver SIK22, -1.68% rose 73 cents, or 2.9%, at $25.92 an ounce, also its highest finish since March 11.
Gold responded, in part, to comments from a number of Federal Reserve officials, such as Minneapolis Fed President Neel Kashkari, who “while talking in hawkish tones, are also emphasizing the fabled ‘soft landing’ while taking on inflation,” said Jeff Wright, chief investment officer at Wolfpack Capital.
Meanwhile, the U.S. announced new sanctions on Russia in response to its ongoing invasion of Ukraine, feeding haven demand for the precious metal. The U.S. also made it clear that gold-related transactions with Russia’s central bank are prohibited.
President Joe Biden met Thursday with leaders of the North Atlantic Treaty Organization, the first of a series of meetings with European allies and other world leaders in response to Russia’s Feb. 24 invasion of Ukraine.
“The brutal reality of war in Ukraine continues on the ground but a sense of it getting closer to de-escalation, even if only temporarily, has been rising in the markets” said Ricardo Evangelista, senior analyst at ActivTrades, in a note.
“As the safe-haven trade that propelled the price of the precious metal to above $2,000 per ounce earlier in the month eases, traders’ expectations over what the Fed will do over the next few months comes once again under the spotlight,” he said.
Fed officials this week have signaled they’re prepared to raise interest rates even more quickly than previously expected. Fed Chairman Jerome Powell on Monday said the Fed could move rates up by more than a quarter point at future meetings if deemed necessary. Other Fed officials have echoed Powell, pushing up expectations for a half-point increase at the next policy meeting in May.
“The latest signs emanating from the U.S. central bank point at a strong determination to bring inflation under control, with interest rates likely to rise quickly; a scenario that, in the absence of fresh geopolitical concerns, will be likely to weigh on gold prices,” Evangelista said.
In other metals trading, May copper HGK22, +0.26% lost 0.7% to $4.743 a pound. April platinum PLJ22, -1.91% rose 1% to $1,031.20 an ounce, while June palladium PAM22, -6.09% settled at $2,530.60 an ounce, up nearly 0.5%.
Meanwhile, a reading on U.S. durable goods orders showed a decline of 2.2% in February.
Wright said the data show “the economic slowdown in the face of rising inflation is more real than ever.”
For gold, this implies that it will likely be “range bound for time being” — from high $1,800 levels around $1,875 to $2,000-ish and “maybe higher based on Russo-Ukrainian war headlines,” Wright said.
Originally published on Market Watch.