Gold price sustained by safe-haven demand

Gold traded a little higher on Thursday, climbing to $1,937 per ounce before paring its gains later in the day. Gold price is supported by intensifying tensions between Russia and Ukraine, as well as by new western sanctions on Ukraine. If the price of gold decreases, support may be found near 1,877 per ounce, while resistance may be found at around $2,000 per ounce.

Gold’s safe-haven status supports its price, as reports of violent Russian attacks against Ukraine and new sanctions on Russia drive investors away from riskier assets. The conflict in Ukraine has triggered a risk-aversion sentiment, propelling the price of gold to $2,050 per ounce last month. 

The Biden administration announced new sanctions on Wednesday, targeting Russia’s largest financial institutions to increase economic pressure on Russia. The EU also announced a new round of sanctions on Thursday, targeting Russian Banks, and oligarchs and even banning coal imports with an estimated total worth of €4bn a year. Sanctions against Russia have been driving commodities up, especially energy-related commodities, contributing to rising inflation. The price of gold benefits from rising inflation, since it is often used as an inflation hedge.

In case the crisis in Ukraine is resolved, however, sanctions against Russia will likely be lifted, reducing the disruption of global commodity and energy supply chains, decreasing global inflationary pressures, and driving the price of gold down. A de-escalation of the crisis still seems to be some way off, however, and attacks against Ukrainian cities were renewed this week.

The gold price has been weighed down by the rising dollar and strong US yields in the past couple of weeks. Increasingly hawkish Fed rhetoric has been driving USD price up, as investors scan Fed members’ statements to gain insight into the Fed’s future direction. The dollar has been climbing, with the dollar index reaching close to 100, as markets are beginning to price in a steep rate hike of 50 base points at the Fed’s next policy meeting in May.

US treasury yields remained strong on Thursday, with the 10-year treasury yields rising above 2.66% for the first time since 2019, as investors anticipate a more aggressively hawkish Fed policy. Real yields compete directly with gold, which is a non-interest-bearing asset, and their rise puts pressure on the price of gold.

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Written by:
Myrsini Giannouli

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