Rising oil and commodity prices mean gold's uptrend will last long after Ukraine war is resolved
(Kitco News) - Russia's war with Ukraine continues to roil global financial markets and global supply chains, which is driving commodity prices higher and adding further momentum to gold, according to some analysts.
While off its highs, overnight gold prices pushed above $2,000 an ounce, hitting their highest level since September 2020. The rally in the precious metal came as oil prices jumped 10%, rising to $130 a barrel, its highest level in 14 years.
According to many analysts, oil prices jumped as the U.S. said that it was considering placing sanctions on Russian oil exports due to its incursion into Ukraine. The ongoing conflict in Eastern Europe is also generating safe-haven demand for gold. However, analysts have said that gold is also seeing new momentum on rising commodity prices pushing inflation higher.
Daniel Pavilonis, senior commodities broker with RJO Futures, said that gold is once again recognized as an essential store of value. The market, he said, is much bigger than a safe-haven asset to protect against geopolitical risks.
He added that even if tensions between Russia and the Western world started to ease, gold remains well supported through the long-term.
"The story for gold has now become a global one," he said. "It's not just oil, but all commodity prices are going higher, and that is going to create major inflation, and investors are turning to gold to protect their capital. With inflation, once the cat is out of the bag, it is very difficult to get it back in without raising rates so high that it causes long-term economic damage."
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Pavilonis added that the growing conflict is creating some near-term volatility in gold, noting that investors need to look at the long-term picture.
"Gold is a very good asset to help you through this inflationary pressure," he said. "The long game is that gold will continue to go much higher than we can believe, mostly because of inflation."
Ole Hansen, head of commodity strategy at Saxo Bank, said that he also expects gold to remain in its current uptrend as commodity prices push higher. He added that he expects sanctions to Russia to stay in place for the foreseeable future, even if its military immediately left Ukraine.
Hansen noted that commodity prices were in a strong uptrend even before Russia invaded its neighbor.
Along with the war, Hansen said that rising oil prices above $100 a barrel will threaten global economic growth.
"We are looking at growth-killing fuel prices," he said. "Hopefully, we will soon see a de-escalation in Ukraine, but even if we do, the trajectory for gold will remain in place for a while."
Another factor that makes gold attractive in the current environment is its relative stability, said Hansen. He added that although prices have spiked higher in recent weeks, it has not seen an unstainable, parabolic move.
"This the conflict in Ukraine started, gold prices are up about 4%," he said.
By comparison, oil prices are currently up 29% after dropping from their elevated session highs.
Adrian Day, president of Adrian Day asset management, said that once gold's geopolitical premium wains, investors will start to focus on inflation.
"We are likely to see higher prices continue; following another CPI high, almost overlooked amid the war, higher oil and commodity prices will flow through the system to yet higher CPI numbers," he said in a note to clients published during the weekend.