Geopolitical Risk Pushes Gold Above US$2,000, Oil and Palladium Hit Fresh Highs

Gold Investing
a green arrow ascending in front of gold bars
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The ascent marks the first time gold has passed the US$2,000 per ounce threshold since July 2020, when values touched an all-time high amid pandemic-related closures, curtailments and disruptions.

Breaking past US$2,000 per ounce over the weekend, the gold price has consistently trended higher since January on the back of record inflation and increasing geopolitical hostility.

Russia’s invasion of Ukraine eroded any investor risk appetite in mid-February, instead driving safe-haven demand.

Since January 6, the yellow metal has gained 12 percent, climbing from US$1,790 to US$2,007 in pre-trading hours on Monday (March 7). The ascent marks the first time gold has passed US$2,000 since July 2020, when values touched an all-time high of about US$2,060 amid pandemic-related closures, curtailments and disruptions.

Now, almost two years later, a new set of factors are adding tailwinds to gold’s momentum.

“As a high-quality and very liquid asset, gold is regularly used as a safe haven in periods of heightened risk, and this is no exception,” said Juan Carlos Artigas, head of research at the World Gold Council.

“The gold price has risen over the past month on the back of inflation concerns, in addition to the potential effect of recent geopolitical events on financial markets and, more generally, the global economy.”

As Artigas told the Investing News Network, rampant inflation paved the way for gold’s February growth; last month saw prices rise from US$1,875 to US$1,935. While safe-haven positioning has been a major catalyst for gold’s recent moves, the yellow metal’s liquidity has also proven to be enticing for market participants.

“Gold is a recognized source of liquidity, trading on average more than US$120 billion a day,” Artigas added.

“Gold carries no credit risk, but trades 24/7 and its bid/ask spreads have remained historically tight in periods of uncertainty. Therefore, gold not only protects wealth, but also can provide liquidity for investors in periods when other holdings are either falling substantially or, like in private markets, are not easily accessible.”

Of course, gold isn’t the only commodity seeing price increases during the widespread volatility. Oil prices have soared higher, with both West Texas Intermediate and Brent crude holding firmly above US$100 per barrel.

Meanwhile, palladium prices reached an all-time high of US$3,338 per ounce early on Monday. The future of palladium supply is looking precarious, as Russia is one of the leading producers of the automotive metal. In 2020, it led the pack with 91,000 kilograms, and in 2021 the US Geological Survey estimates that it produced 74,000 kilograms, falling to second behind South Africa's 80,000 kilogram output.

According to Metals Focus, Russia is expected to produce 38 percent of primary palladium supply this year.

“Although there are currently no sanctions on Russian palladium supply, the potential for the metal to be sanctioned, the expulsion of Russian banks from SWIFT and the closure of EU airspace all generate uncertainty and have caused investor-led buying of the metal,” a March 2 report from the metals consultancy firm states.

Gold ETFs see healthy inflows

After pulling back to the US$1,965 range before the morning bell on Monday, gold began trending higher again. The precious metal is likely to benefit from the volatility ahead as markets in the US and UK remain depressed, weighed down by uncertainty and bearish sentiment.

“Gold’s value as a strategic asset was brought into focus near the end of February amid significant market volatility,” Adam Perlaky, senior analyst at the World Gold Council, wrote in a Monday note.

Investors have also turned to gold exchange-traded funds (ETFs) as part of their safe-haven strategy. February was the strongest month since May 2021, as it saw gold ETF inflows top 21.3 tonnes.

“Although demand across gold-backed ETFs has increased since the beginning of the year, uncertainty surrounding current geopolitical events drove additional inflows and amplified that shift," Perlaky wrote. "Looking forward, we believe that the geopolitical situation, coupled with inflation, will ultimately result in continued periods of market volatility that have historically supported gold demand.”

As of 10:15 a.m. EST on Monday, gold was priced at US$1,981.75.

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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

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