Gold, otherwise referred to as the yellow metal, hit the highest price in its trading zone since August 2020 as investors demand rises to store up the asset amidst the geo-political pressure caused by the Russian-Ukraine war.
The gold futures rose by 4.2% last week, its largest weekly advance since July 2020. Though, gold price has retracted to as low as $1,600 levels since August 2020, due to the hawkish federal reserve, global inflationary pressures and the ongoing war, the price has been pushed above its resistance zone of $2,000 with many investors believing that it’s a safe haven asset to trade.
With Gold’s standing as an inflation hedge in countries, its growth has been boosted by the ultralow interest rates and the expenses made during the pandemic period. The Federal reserves slashed the U.S. interest rate to nearly zero after the Covid-19 pandemic outbreak in 2020 and has since then, kept them to enhance economic recovery.
- The Russian-Ukraine war began almost two weeks ago, precisely on 24 March 2022 with Russia special military operation into Ukraine. In an attempt to support the Ukranian government and its people, the United States and other European nations began the imposition of sanctions on Russia.
- Asides from sanctions by governmental organizations, private entities and solidarity with Ukraine have began to stop operations and dealings within the country. All services and businesses such as KPMG, PayPal, MasterCard, among others have stopped transactions with Russia.
- Due to Russia’s influence on the global economy, there are sevearal consequences for not dealing with the nation. Recall, Rate Captain reported two articles on the effect of the war. The first is the effect of the war on the Nigerian economy while the second is on how it disrupts the global market.
- Today, the Brent oil future price surged as it hit $135 per barrel, its highest since 2014.
- Other commodities such as wheat, of which Russia’s exports account for about 24% of the global export and Palladium which Russia produces over 40% of the world’s global supply have also surged in prices. Hence, the prediction of a higher inflation rate is expected if the war persists.
- Due to the expectations of the high inflation rates, investors begin to hedge against risk as the store up the safe haven asset – gold. Gold is known to be the first asset class of though when it comes to investors hedging against risk due to its high market capitalization of $12.544 trillion, assumed not to fall as it has maintained value over time based on historical information. Thus, amidst the Russian-Ukraine drift, where inflationary pressures are expected to persist, investors demand rises for gold as a safe haven asset.
However, higher gold prices are expected in the future as long as the war remains. According to the Personal Consumption Expenditure Index, a U.S. inflation indicator and the Federal Reserves, the inflation rates rose by 5.8% in December and 6.1% in January, with both readings indicating the fastest growth since 1982.
Gold -backed ETFs holdings could rise by 600 tons this year if concerns over U.S. growth widen, likely leading to a price spike to $2,350 an ounce, according to Goldman Sachs.