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Thursday, December 7, 2023

Volatile Gold Breaks US$1,970 as Russia Begins Assault on Ukraine

Values for gold and oil surged higher in pre-trading hours on Thursday (February 24) as Russia commenced a military assault on several regions in Ukraine following weeks of growing tension.

Global equity markets contracted sharply following news of widespread casualties and the destruction of many Ukraine airforce bases. The NASDAQ Composite (INDEXNASDAQ:.IXIC) had shed 20 percent by midday, while the S&P 500 (INDEXSP:.INX) and Dow Jones Industrial Average (INDEXDJX:.DJI) sank by triple digits over the noon hour.

Prices for West Texas Intermediate crude oil surpassed US$100 per barrel briefly — an eight year high — before settling into the US$98 range. Gold rose to US$1,976 before returning to the US$1,955 level after the morning bell.

In a pre-dawn statement, Russian President Vladimir Putin warned, “Whoever tries to interfere with us, and even more so, to create threats for our country, for our people, should know that Russia’s response will be immediate and will lead you to such consequences that you have never experienced in your history.”

The address was shown on state television minutes prior to the initial assault, with Putin adding, “We are ready for any development of events. All necessary decisions in this regard have been made.”

The invasion has been condemned by the international community, with US President Joe Biden, who has levied sanctions against Russia in recent days, taking to Twitter (NYSE:TWTR) to voice his concerns.

As Thursday continued, the UK, Canada and US also announced “severe” sanctions on Russia’s economy, businesses and elites in an effort to curb the country’s ability to fund its military actions.

Russia/Ukraine not the only key gold driver

Gold performed relatively flatly throughout 2021, remaining locked below US$1,800, but since mid-January the yellow metal has been trending higher, spurred by mounting Russia/Ukraine tensions, as well as continuing economic challenges stemming from the COVID-19 pandemic.

“If you go back to the gold price chart on the day that the conflict was formally announced, there was a spike. That said, there’s a lot going on in the world right now. The Russia/Ukraine conflict could merely be the straw that broke the camel’s back,” said Brian Leni, editor and founder of Junior Stock Review.

“Investors who were already stricken with trepidation regarding the (US Federal Reserve’s) potential interest rate hikes may have been exacerbated by this new geopolitical conflict. Hence, the conflict moved those on the fence into the market to buy gold — the fear trade,” he explained to the Investing News Network.

Gold’s safe-haven allure is only one of the factors that makes it a popular investment in times of conflict.

“Simply, gold is real money,” said Leni. “While its utility in economies and financial markets has changed over the last 100 years, it remains the go-to form of wealth preservation.”

He went on to explain that the devaluing of fiat currencies is another factor that underscores the historical value of gold, as well as its importance as an investment.

“The issue with fiat is straightforward; in our current financial system, fiat is constantly losing its value due to inflation. If it isn’t put to work creating an income stream, therefore, it’s dying a slow death,” he said.

“On the other hand, gold, throughout history, has maintained its value — steadfast. When fear becomes prevalent in the market and cash flows appear to be threatened, investors turn to gold.”

How high will the gold price go in 2022?

After rocketing to US$1,976 on the news of Russia’s invasion of Ukraine, gold pulled back to hold at US$1,920 as of mid-morning on Thursday, still up about US$100 from its January start value.

Considering the rapidly evolving attack on Ukraine, as well as rampant inflation, the broad consensus is that the gold price is likely to see more tailwinds in the days and weeks ahead.

For Leni, the upcoming US Federal Open Market Committee (FOMC) meeting scheduled for March 15 to 16 will offer more insight on how the gold market is likely to perform in the months ahead.

“Given the situation worldwide, I think the FOMC meeting in mid-March becomes that much more important, all eyes are watching what they do,” Leni said, noting that March will be interesting. “The Russia/Ukraine conflict matters, but I think comes second when compared to the impact of the Fed’s decision to raise or not raise rates.”

Whether gold will surpass its all-time high of US$2,067 remains to be seen. Gold has rallied 13 percent over the last 12 to months, making a 4 percent move to US$2,067 attainable.

“To me, the gold price reaches new highs in 2022, but there are still 10 months of 2022 ahead of us — we’ll see what happens,” said Leni about the yellow metal’s path forward.

Don’t forget to follow us @INN_Resource for real-time updates!

Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

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