The Crisis in Ukraine Is Positive For Gold

EDITOR'S NOTE: The Russia-Ukraine standoff and the coming Fed rate hikes are two of the yellow metal’s biggest drivers, according to the CNBC article below. Both are seen as “positive” for gold. But not all analysts agree. Some see rate hikes as a favorable opportunity for high yield. Here’s where investors have to make a tricky decision amid a fluid and volatile situation. If rate hikes were to slow inflation, what are the chances that the Fed moves too slowly or timidly, in which case inflation erodes any prospects of higher yield? What if the Fed moves too quickly, decimating paper wealth across the board (and across the global economy)? And what if the crisis in Europe unfolds in such a way that doesn’t match current estimates and forecasts? In short, how certain are you about your own assumed certainties? Sometimes we invest in gold not because we “know” its outcome but because too many outcomes are simply “unknowable.”

Gold advanced on Monday as a selloff in Wall Street driven by geopolitical tensions over Ukraine bolstered its safe-haven appeal, while investors prepared for the Federal Reserve’s rate hike decision.

Spot gold rose 0.4% to $1,840.16 per ounce. U.S. gold futures settled up 0.5% at $1,841.70.

NATO said it was putting forces on standby in eastern Europe in response to Russia’s military build-up at Ukraine’s borders.

“The Ukraine story is positive for gold and the Fed policy will eventually evolve into a little bit more conservative tapering since the Fed still believes a lot of this is going to be transitory,” said Ed Moya, senior market analyst at brokerage OANDA.

The selloff on Wall Street worsened on the Ukraine-Russia tensions and expectations that the Fed would tighten monetary policy at a much faster pace to tame high inflation.

But CMC Markets UK chief market analyst Michael Hewson said the Fed was unlikely to have a big impact on gold at present “because the markets are more concerned about what’s going on in eastern Europe,” especially considering a March interest rate hike has been priced in.

Gold also seemed to shake off, to some extent, pressure from inflows into rival safe-haven dollar.

But while gold is considered a hedge against inflation and geopolitical risks, interest rate hikes would raise the opportunity cost of holding non-yielding bullion.

“Assuming that the current wave of risk aversion ebbs away eventually as the Fed addresses these fears, and barring a deterioration of the economic outlook, we thus believe that the gold and silver markets are again experiencing a temporary but no lasting rebound,” Julius Baer analyst Carsten Menke said.

Spot silver dropped 1.9% to $23.78 an ounce and platinum slipped 1.1% to $1,017.81, while palladium rose 2% to $2,149.35.

Originally posted on CNBC.