Gold price skyrocketed to $1,974 on Thursday, its highest price since September 2020, after Russia launched an attack against Ukraine. Gold price jumped early on Thursday, breaking through the $1,917 per ounce resistance level, but deflated somewhat later on Thursday, retreating to $1,877 per ounce. If the price of gold decreases, support may be found at 1,782 per ounce.
The price of gold has been exhibiting high volatility the past few days, spurred by the Ukrainian crisis rollercoaster. Mounting geopolitical tensions support the price of gold, as risk appetite diminishes and demand for safer assets grows.
Treasury yields fell early on Thursday but climbed again later in the day. Rising yields put pressure on the price of gold and compete directly with gold as an investment, as gold does not pay dividends or interest.
The Russian President, Vladimir Putin, signed a decree on Monday recognising the independence of the two separatist regions Donetsk and Luhansk in eastern Ukraine. On Thursday, Russian forces launched a full-scale invasion of Ukraine, with Russian missiles raining down on Ukrainian cities, and explosions were heard even in Kyiv. Dozens were reportedly killed in Ukraine, including civilians, in an assault that the Russian President has described as a “special military operation”.
The US President, Joe Biden, announced on Tuesday the "first tranche" of measures against Russia, which aim to deliver a hard blow on the country’s economy, including sanctions on Russia's sovereign debt so that the country can no longer raise money for its state financing. Biden, speaking from the White House on Thursday, unveiled harsh new sanctions against Russia that would "impose a severe cost on the Russian economy, both immediately and over time." Australia, Canada, Japan, and the UK have also announced sanctions against Russia, targeting Russian banks and oligarchs, while NATO has positioned additional US troops to the Baltic nations bordering Russia.
The EU foreign policy chief Josep Borrell stated that EU members states have unanimously agreed upon a package of new sanctions against Russia. More importantly, Germany has suspended the approval of the Nord Stream 2 pipeline, a move that may cause an energy crisis in Europe, which depends on Russia for approximately 40% of its gas and send the prices of energy-related assets even higher.
The EU announced further sanctions on Thursday, targeting Russia’s defense minister and military chiefs and imposing visa bans and freezing assets of high-ranking Russian officials. European Commission chief Ursula von der Leyen stated that the EU is planning new sanctions against Russia, that will target strategic sectors of the Russian economy, blocking access to technologies and markets and crippling it's economy.
Russia has threatened to retaliate against EU sanctions, and it is likely that the EU, which relies on Russia for key imports, will pay a heavy price. The price of gold, oil, and other key commodities such as corn and wheat is already climbing and prices are expected to climb further as the crisis unfolds, contributing to rising inflation rates in the Eurozone. The price of gold benefits from rising inflation, since the metal is often used as an inflation hedge.
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