Gold Surges as Geopolitical Tension in Eastern Europe Rises to New Heights

Rising geopolitical tensions between Russia and the West, combined with the effects of booming worldwide inflation, has caused the price of gold to soar. The precious metal is trading at its highest prices in over a year as investors seek the safe-haven asset in response to Putin’s increasing belligerent stance against Ukraine; and the resulting sanctions that have been enacted and threatened by the US and the EU member states. Most recently, Russia has ordered troops to enter two separatist regions in Eastern Ukraine after recognising them as independent. The US has also warned that a full-scale invasion could be imminent.

In response, the US has imposed sanctions on the Nord Stream 2 AG company, which oversees the $11 billion pipeline project designed to double the gas flow from Russia to Germany. The EU and US are worried that the project will increase the dependence Europe has on Russian energy.

Meanwhile, Ukraine has declared a 30-day state of emergency starting today, asking its citizens to leave Russia immediately as Moscow moves to evacuate its own embassy in the Ukrainian capital of Kyiv.

Post-Market Effects

Gold prices have surged following a series of fresh sanctions imposed on Russia on Wednesday. This includes sanctions on the Nord Stream 2 AG pipeline, as well as a block on the trading of Moscow’s newly issued bonds.

Spot gold has currently found strength at the $1900 level, with Commerzbank analyst Daniel Briesemann saying that “given that the situation in Ukraine is deteriorating further and a military conflict cannot be ruled out, we believe the gold price is likely … to continue climbing.”

However, gold is still a fair distance away from its all-time high of 2074.88, which it reached in August 2020, and analysts warn that a de-escalation of the situation in Ukraine could mean a significant increase in selling pressure for gold.

In addition, Joni Teves, precious metals strategist at UBS has said that they “expect gold prices to head lower towards the end of this year”.

Currently, the tension in the market lies between inflation and the Russia-Ukraine crisis. Russia is one of the world’s largest exporters of crude oil and metals, and the impact of a disruption in supply could spell trouble. Coamerica Bank has said that the conflict could “exacerbate” inflation and impact the intensity of the Fed’s looming interest rate hikes, which would cause a pullback in gold.

TD Securities’ strategists have said that a diffusion of the geopolitical crisis could cause a repricing in gold since “expectations for a 50bp hike in March from the Fed have also eased as a result of the conflict”, and that a hawkish Fed will “ultimately sap appetite for precious metals.”

Investors are now advised to pay close attention to the upcoming US Initial Jobless Claims figures, which will be released today, 24 February, at 15:30 (GMT+2). As a friendly reminder, do keep an eye on market changes, control your positions, and manage your risk well.