Gold rallies as Russian-Ukraine crisis stoke anxiety

The ongoing Russian-Ukraine crisis has stoked anxiety in risk markets, pushing up gold prices as investors seek safe haven.

The precious metal climbed to $1918.45 per ounce as of 4.30 WAT, Monday. The price is up nearly 6 percent since the start of the year.

Last Thursday, Gold prices jumped to $1926.30 per ounce, its highest in more than a year as the Russian president launched a full-fledged military attack on Ukraine.

Investors consider gold as a safe haven in times of turmoil. For instance, in the early days of the COVID-19 pandemic, gold became a hot investment as cases spread and the stock market cratered.

Despite the surge, experts have said that gold is unlikely to continue its winning streak.

“We doubt that the rise in the price of gold in 2022 so far will be sustained,” Oliver Allen, a markets economist at Capital Economics said in a recent report.

“If tensions eased from here, we think that gold would drop back quite significantly,” Allen said, saying that the firm expects the price of the yellow metal to fall back to $1,600 per ounce, from $1,900 currently.

However, Goldman Sachs still expects the prices of gold to surge past $2000 per ounce in the coming months.

“The recent escalation with Russia creates clear stagflationary risks to the broader economy, driven by higher energy prices, which reinforce our conviction in higher gold prices in coming months and our $2,150/toz (troy ounce) price target,” Goldman said.

Contrary to the speculations that the gold rally is as a result of the Russian-Ukraine crisis, Alain Corbani, portfolio manager at Finance SA in a recent interview said the gold rally was in response to heightened inflationary expectations and not as a result of the conflict.

“Since October 2021, the interest for gold has gone up in a measured way. Gold is not really reacting to the crisis, it is reacting to inflation and a lot of uncertainty,” Corbani said.

The United States, along with Canada and European allies, the United Kingdom, France, Germany and Italy, has cut off some Russian banks from the international payment system Swift.

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European nations and Canada moved on Sunday to shut their airspace to Russian aircraft, an unprecedented step aimed at pressuring Putin to end his invasion of Ukraine.

The Russian Central bank has hiked interest rates to 20 percent from 9.5 percent as its currency dropped by a whopping 30 percent against the dollar. The higher interest rates would increase returns to investors hereby attracting foreign capital to the country and increasing the country’s exchange rate.

The bank of Russia has also stated that it would resume buying gold in the domestic market in an attempt to shore up finances and find ways to make sanctions less severe on its economy.