The Yellow metal is bullish at the start of the London session today as it trades at its highest level in almost three months as investors place bets on whether the latest developments in geopolitical tensions between Russia and Ukraine would increase demand for the asset general tagged as a safe haven asset against inflation.
Gold’s appeal as a store of value and an inflation hedge has seen its price hold up, despite the diplomatic efforts being undertaken to defuse the Ukraine situation. Goldman Sachs analysts led by Jeffrey Currie explained in a report that Gold and oil have from time, proven to be the cleanest hedges for geopolitical risk.
Russian President Vladimir Putin countered United States’ warnings that Russia may invade Ukraine within days by hosting a press conference and staging televised meetings with his foreign and defence ministers emphasizing the desire for de-escalation of tensions and continued efforts to find a diplomatic resolution. Moscow has repeatedly denied its plans to invade.
What you should know
The yellow metal is currently up by 0.58%, currently trading $1,888.15 an ounce as of the time of this reporting, after hitting its highest level since November at $1,873.91 during the previous session. Spot gold closed higher in nine of the past 11 sessions.
Global shares declined on Monday, while oil climbed to seven-year highs, after the U.S. warned of an imminent Russian invasion of Ukraine and decreased investors’ risk appetites. Benchmark U.S. 10-year Treasury yields also eased, also giving the safe-haven yellow metal a boost.
In Asia Pacific, data released earlier in the day showed that Japan’s GDP grew 1.3% quarter-on-quarter and 5.4% year-on-year in the fourth quarter of 2021. Although declining numbers of COVID-19 cases in the country helped boost consumption, rising raw material costs and a surge in new Omicron variant infections clouded the outlook.
The Reserve Bank of Australia also released the minutes from its latest meeting earlier in the day, with the U.S. Federal Reserve due to release the minutes from its own meeting on Wednesday.
What they are saying
Another reason for the rally in the price of Gold seen is the increasing bets that the U.S Federal Reserve will have a more aggressive tightening stance. Fed Bank of St. Louis President, James Bullard said the U.S. central bank needed to move forward with its plans to raise interest rates to underline its inflation-fighting credibility.
In a CNBC interview Monday, Bullard repeated his view that the central bank should raise interest rates by 100 basis points by July 1. Still, Fed Bank of Kansas City President Esther George said the bank should take a systematic approach to remove accommodation but be careful to not “oversteer.”
Edward Moya, a senior market analyst at OANDA stated, “Gold is starting to garner strong interest as the need grows for protection against a Fed policy mistake, geopolitical risks, and growth concerns. The $1,880 level should prove to be key resistance for gold, but if that does not hold, bullish momentum could take prices to the $1,900 level.”
Fed officials continue to debate how aggressive upcoming interest rate hikes should be ahead of their March 2022 meeting. The U.S. releases its producer price index (PPI) later in the day, with China releasing its own PPI and consumer price index a day later.
In other precious metals, Silver is down 0.08%, currently trading $23.83 an ounce. Platinum is down 0.21%, currently trading $1,030.65 an ounce. Palladium is down 1.20%, currently trading $2,337.00 an ounce.
