Gold continued trading high on Thursday around the $1,930 per ounce level. Severe sanctions against Russia, culminating in the exclusion of Russian banks from the SWIFT system, have triggered fears of a global economic crisis. A risk-aversion sentiment has prevailed, driving investors towards safe-haven assets.
Gold price is supported by the ongoing war in Ukraine, although it is still far from last week’s $1,974 per ounce level. This is the highest price reached by gold since during the height of the pandemic, in August 2020. If the price of gold decreases, however, support may be found at 1,782 per ounce.
Sanctions against Russia are likely to have a heavy impact not only on the Russian economy, but on the global economy as well, and especially on the Eurozone, which relies on Russia for key imports. The price of 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.
Global commodity prices have soared to a 14-year record on Thursday and are expected to rise by their biggest weekly percentage since 1970 by the end of the week, as the S&P GSCI index has climbed by 16% so far this week and continues rising. US Oil prices hit their highest levels since 2008 on Thursday, over Russia supply fears, while European natural gas prices surged to an all-time high of approximately €200 a megawatt-hour. The price of gold benefits from rising inflation, since it is often used as an inflation hedge.
The effect of rising inflation on gold may be temporary though, as soaring inflation rates may push major Central Banks towards a more hawkish policy. The Fed, the ECB, and the BOE are expected to tighten their monetary policies in the following weeks to months, boosting the value of real yields and putting pressure on the price of gold. Fed Chair Powell signaled in his speeches on Wednesday and Thursday, that the Fed would raise its benchmark interest rate by at least 25 base points in its next meeting on the 16th and seemed to leave open the possibility of a bigger rate hike, if not this month, then later this year, if inflation rates remain high.
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