Investors are scrambling towards the safety of gold with Russia’s invasion of Ukraine sending the bullion surging to a one-year high.
Gold (GC=F) climbed 3.2% to $1,971.50 per ounce this midmorning, after hitting the highest since January 2021 at $1,948.77.
"Gold is a safe-haven asset along with the US dollar, and this is its day. We could inevitably see new all-time highs in gold," Jeffrey Halley, a senior market analyst at OANDA, said.
The attack that brought explosions in the Ukrainian capital of Kyiv, and across the country, sparked a flight to haven assets, with European stocks and US futures dropping while Treasuries rallied.
“The Russian invasion of Ukraine puts the markets in panic mode,” said Alexander Zumpfe, senior trader at refiner Heraeus Metals Germany GmbH & Co.
“Investors are throwing shares out of their portfolios and fleeing to safe havens.”
During periods of high inflation, like the one we are seeing now, gold has been seen as a safe bet to guard against rising prices and unpredictable stock markets, as the asset has a history of delivering higher-than-inflation returns.
But gold’s traditional status offer only protection, not necessarily gains.
‘It’s tempting to look towards obvious “safe-havens” in times of crisis. Although the price of gold has spiked recently, as it nearly always does in times of crisis, it is worth bearing in mind that it does not offer investors a yield. Historically there tends to be an inverse correlation between gold prices and the yield on US Treasury Inflation Protected Securities,” said Jason Hollands, managing director of online investing platform Bestinvest, who warned British investors not to panic into making hasty decisions.
We “expect that gold prices break through $2,000/oz in the coming days if the conflict further escalates,” Bernard Dahdah, senior commodities analyst at Natixis SA, wrote in a note. “A quick correction will ensue once the conflict’s intensity winds down.”
Gold has risen 8% in February and the metal is headed for its best monthly performance since July 2020.
“Gold has historically been a place to hide in times of turmoil and the precious metal lived up to its reputation for being a ‘safe-haven’, with it rising 1.7% to $1,947 per ounce,” Russ Mould, investment director at AJ Bell.
“In recent years we’ve heard people argue that bitcoin is the new ‘safe-haven’. However, it certainly hasn’t displayed any signs of being a store of value during the current crisis. The cryptocurrency was down 5.3% on Thursday, and down 26% year to date,” he added.
The scope of Russia’s attack is not immediately clear, but all the evidence points to a large-scale operation. Explosions were heard in Kyiv, Kharkiv and Odessa, with Ukraine's government saying at least 40 Ukrainian soldiers have been killed and at least several dozen wounded in what it called a "full-scale war" targeting the country from the east, north and south.
"The market is very volatile and gold is clearly the primary trade on this dynamic at the moment... as long as sanctions keep getting slapped on Russian institutions and individuals, it is going to be ideal for gold," IG Markets analyst Kyle Rodda said
Most investors are still waiting on what further economic and financial sanctions will follow to decide their next move.
"Should fears over geopolitical tensions subside, that would leave the Fed’s policy tightening path as bullion's primary driver, with further climbs in real Treasury yields likely to unwind the geopolitical risk premiums currently baked into gold prices," Han Tan, chief market analyst at Exinity said.
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