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(Kitco News) – Russia’s war with Ukraine continues to roil global financial markets and global supply chains, pushing up commodity prices and adding further momentum to gold, according to some analysts.
Even though overnight gold prices did not peak, they rose above $2,000 an ounce, reaching their highest level since September 2020. The precious metal’s rally came as oil prices jumped 10% to $130 a barrel, the highest level in 14 years.
According to many analysts, oil prices jumped after the US said it was considering imposing sanctions on Russian oil exports due to its invasion of Ukraine. The ongoing conflict in Eastern Europe is also creating a demand for gold as a safe haven. However, analysts say gold is also experiencing renewed momentum as commodity prices rise, pushing inflation higher.
Daniel Pavilonis, senior commodity broker at RJO Futures, said gold is once again recognized as a store of value. According to him, the market is much more than a safe-haven asset to protect against geopolitical risks.
He added that even if tensions between Russia and the Western world begin to ease, gold will have good support in the long term.
“The history of gold has become global,” he said. “Not only oil, but the prices of all commodities are rising, and this will cause major inflation, and investors are turning to gold to protect their capital. With inflation, once the cat is out of the bag, it’s very difficult to get it back without raising rates so high that it causes long-term economic damage.”
Pavilonis added that the growing conflict is creating some short-term volatility in gold, noting that investors need to look at the long-term picture.
“Gold is a very good asset to help you overcome this inflationary pressure,” he said. “The long game is that gold will continue to rise much higher than we can imagine, mainly due to inflation.”
Ole Hansen, head of commodities strategy at Saxo Bank, said he also expects gold to remain in its current uptrend as commodity prices rise. He added that he expects sanctions on Russia to remain in place for the foreseeable future, even if its military leaves Ukraine immediately.
Hansen noted that commodity prices were in a strong uptrend even before Russia invaded the neighboring country.
Along with the war, Hansen said, rising oil prices above $100 a barrel would threaten global economic growth.
“We are looking at fuel prices killing growth,” he said. “Hopefully we will see a de-escalation in Ukraine soon, but even if that happens, the gold trajectory will continue for a while.”
Another factor that makes gold attractive in the current environment is its relative stability, Hansen said. He added that while prices have risen sharply in recent weeks, there has not been a sharp parabolic move.
“This started the conflict in Ukraine, gold prices rose by about 4%,” he said.
In comparison, oil prices are currently up 29% after falling from high session highs.
Adrian Day, president of wealth management at Adrian Day, said that once the geopolitical premium for gold declines, investors will start to look at inflation.
“We are likely to see prices continue to rise; after another CPI high almost unnoticed during the war, higher oil and commodity prices will move through the system to even higher CPI readings,” he said in a note to clients over the weekend.
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