Is Russia Affecting the Price of Gold?

Are recent developments in Russia affecting the price of gold? This question is a recurring one. The price of gold recently surpassed US$2,000 an ounce. The rise in price is the result of a US embargo against Russian oil exports. The embargo is effective immediately. However, investors should be aware of the time it takes to wind down contracts. The embargo period is roughly 45 days.

The uptrend in gold prices is not sustainable, however. The situation is fluid, and the price may remain elevated for a while. Investing in gold related stocks and gold-backed exchange-traded funds can be a smart move. Buying these precious metals can be a hedge against inflation and a great way to diversify your portfolio. Moreover, if you’re concerned about the price of oil, gold is an excellent investment for inflation-proofing.

Interest Rates Rise

The Fed’s recent action to raise interest rates could also be a shock to the gold market. A tighter monetary policy could push the price of gold lower. It could also lead Russia to monetise its gold reserves. It’s impossible to predict what might happen, but the recent sell-off has opened up better entry points for some Latin American corporates. In the meantime, the price of gold could rise in the coming years.

Sanctions Lead to Negative Impacts

If sanctions against Russia are imposed on its central bank, they could have knock-on effects on the price of gold. If Russia is forced to cut back on its foreign exchange reserves, it will likely impact other central banks as well. And because foreign exchange reserves act as an economy’s “rainy day fund,” a reduction in the price of gold could have adverse effects on the entire world. In addition, Russia has a large trade deficit with China.

As long as the conflict in Russia escalates, the war premium is building into gold prices. That premium is likely to persist for some time. So far, however, it has been a bullish period for gold, rising nearly 10% in the past year, and topping US$1,980 per ounce last Wednesday. It is widely regarded as a safe haven asset in uncertain times and a hedge against rising inflation.

World Markets Spooked!

In addition, a rising Russian-Ukraine conflict has spooked world markets. This tension has caused widespread fear among the general public. With the threat of war looming over the two neighboring countries, the price of fuel could increase. As a result, prices may rise in India. After the attack, oil prices jumped 7%. Brent crude oil futures currently trades at $103 a barrel.

The conflict in Ukraine also threatens the flow of natural gas to Europe. This would push prices up significantly. In addition to halting the supply of oil, fighting could disrupt the flow of gas and oil to Europe. In addition to oil, several countries get gas from Russia via the Ukraine, Poland, and the Baltic Sea. With all of these issues looming in the background, it is not surprising that the price of gold would rise.

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