Make Kitco Your Homepage

Is $3k next for gold price after breaching all-time highs?

Kitco News

(Kitco News) Gold saw a massive move to new record highs above $2,070 an ounce as markets priced in America's ban of Russian oil and other energy imports.

The precious metal powered to new record highs of $2,078.80 an ounce, up more than 4% on the day, driven by safe-haven and inflation-hedge buying. April Comex gold futures were last at $2,075.30, up $80 on the day.

The geopolitical uncertainty concerning Ukraine and new sanctions against Russia have created strong demand for gold. Investors are viewing the precious metal as a hedge against risk, inflation, economic shock, and additional geopolitical uncertainty, according to analysts.

Since the war in Ukraine began, gold ETFs alone saw 55 tons of inflows, said Commezbank analyst Daniel Briesemann.

"Gold is in considerable demand as a safe haven, as evidenced by persistently high ETF inflows. According to Bloomberg, inflows totaled more than 14 tons yesterday; inflows since the invasion of Ukraine by Russia have amounted to 55 tons."

Plus, this particular geopolitical conflict has spilled over into broader economic and inflation expectations, which makes its impact on gold more permanent.

"We are drifting into full-blown sanctions," TD Securities head of global strategy Bart Melek told Kitco News on Tuesday. "Typically, the risk premium to gold following geopolitical event peters out quickly. But in this situation, even if things calm down, you will still have an inflation problem. And it doesn't look like it will calm down any time soon. You are hoping for peace, but it doesn't look likely based on what we've seen lately. We are going to get these supply shocks counting across the board."

U.S. President Joe Biden said on Tuesday that he would be banning all imports of Russian oil. "We're banning all imports of Russian oil and gas and energy," Biden told reporters. "That means Russian oil will no longer be acceptable at U.S. ports, and the American people will deal another powerful blow to Putin's war machine."

The U.K. government also joined the U.S., stating that it will ban all imports of Russian oil.

Earlier in the day, Russian Deputy Prime Minister Alexander Novak threatened to cut the EU's gas supply by closing Nord Stream 1, the main Russia-Germany gas pipeline, if Russia's oil imports are banned.

"It is absolutely clear that a rejection of Russian oil would lead to catastrophic consequences for the global market," Novak said in a statement on state television. "The surge in prices would be unpredictable. It would be $300 per barrel if not more."

The consequences of these developments are additional price shocks and significantly higher inflation for longer than previously estimated, said Melek. "Certainly, in the near term, there is not much to replace that Russian supply. I was saying we could see $145 oil, but it could go higher," he said.

For gold, this means more demand, including more central bank buying, which has a big impact on prices due to the usual volume involved.

Live 24 hours gold chart [Kitco Inc.]

Is $3k gold price possible in 2022?

As sanctions against Russia continue to escalate, some analysts are not ruling out gold approaching $3,000 an ounce.

This is because when gold's record high from the 1980s is adjusted for inflation, it would be at $2,927 an ounce, said Melek. "In nominal terms, that was about $850 back in 1980," he said. "When I adjust it for inflation, it is at $2,927. That's the record high if you adjust it for inflation."

The path to that level is possible in light of potential central bank gold buying that the world could see this year and the uncertainty around the Federal Reserve rate hikes.

Gold is being viewed as a tangible asset that no one can take away, Melek pointed out. "I suspect there is a lot of purchases by central banks. It's turning out that $600 billion of Russia's foreign reserves are useless because its central bank has been sanctioned. The only thing that seems viable now is physical gold. The experience is similar on the individual level, as your accounts can be frozen. If they cut off your internet, you can't get your money. But no one can access physical material," he said.

Bulls hit the accelerator and push gold price sharply up and to record high

On top of that additional demand, the inflationary expectations have surged on a global scale in response to commodity supply shocks.

"The Fed is going to be in a difficult situation policy-wise," Melek said. "If they get aggressive, does that really help inflation? Not really. The supply shock is there. Inflation impact from higher rates would be later. And there is already a negative supply shock, so it might not be wise to do this. The Fed's tightening won't be near enough to cause real rates to move up sharply. And therefore, gold is going higher."

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.