Fewer and fewer alternatives other than gold
(Kitco News) - Russia's war on Ukraine has entered its second week and it is no surprise that people are looking for safety wherever they can find it. Right now that happens to be the U.S. dollar and gold.
Since Russia's invasion, roughly one million Ukrainian refugees have fled to Europe, creating a significant humanitarian crisis. The war is also creating major global economic uncertainty. The Russia economy is all but crippled as businesses cut ties with the aggressor nation.
As expected, the war is having a major impact on oil prices. Supply disruptions have pushed prices back above $100 a barrel, to their highest level since 2008. Rising energy prices is adding pushing inflation pressures higher. This environment continues to create major volatility in equity markets, which hovers in correction territory.
With fewer and fewer alternatives, investors are turning to gold and precious metals en masse. Prices are looking to end the week with an impressive 4% gain and many analysts continue to say that its only a matter of time before prices push above $2,000 an ounce.
Gold's rally Friday is even more impressive when looked at the economic backdrop. Friday, data from the U.S. Labor Department said that the U.S. economy created 678,000 jobs in February. At the same time, the latest nonfarm payrolls report showed that the unemployment rate fell to 3.9%.
The better-than-expected data was less than a speed bump for gold as prices have pushed through $1,950 an ounce.
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Earlier in the week, Federal Reserve Chair Jerome Powell, said that despite the uncertainty caused by the conflict in Eastern Europe, the central bank is on pace to raise interest rates later this month. However, he added that the Federal Reserve still needs to be nimble when evaluating incoming data.
At the start of the year, news of an impending rate hike would have been enough to send gold bulls running; however, these are anything but normal times, the need for a safe-haven in this environment is a powerful motivation.
In a recent commentary, James Luke, fund manager at Schroders said that gold is on its way to being the only real safe-haven asset for investors as inflation takes its toll on traditional bond markets.
"We're on the front lines of gold business, and what we are seeing is more investors moving into gold and adding it to their portfolios at higher percentages. That's the underlying bid for gold," he said. "People are starting to realize that if they don't do something, they're not going to be protected. The pressures have built up, so being in bonds will hurt you. Being in stocks will hurt you. Holding cash is punishing you, but right now, it is prudent to hold cash."