Updated: Mar 29, 2022
Gold prices inched closer to USD 2000/Oz this week
as recent Russian sabre rattling escalated into the deployment of troops into several regions of the Ukraine following strategic airstrikes against Ukrainian air defence targets.
Many analysts are predicting an all -time high price for the yellow metal in the near future as an already tense geopolitical situation threatens to descend in to an all-out war.
Stock markets around the world sold off sharply as investors sought safe havens (such as Gold) to weather the economic storm the events the Russian intervention in Ukraine are certain to bring about.
Far from immune from the fallout, Crypto markets sold off sharply too, with Bitcoin falling below 35000$ before staging a remarkable next day recovery. The Crypto market overall fell over 6% on news of the bombs hitting Ukraine, exasperating what has already been a torrid few months for crypto investors, however, the market followed bitcoins rebound on Friday and finished the week higher.
Reports of Cryptocurrency usage spiking in Ukraine in recent days are well founded as citizens look for ways to circumvent the central banks restrictions that have been brought about by martial law being imposed. It is no stretch to assume that sanctioned oligarchs may well use a similar strategy to side step western sanctions.
As The west promises “unprecedented sanctions” in response to Russia’s actions, it remains to be seen exactly what the economic effects will be for the worlds markets. With that said, it is safe to assume that whatever effects result, could well be severe and long lasting
Higher commodity prices are almost a certainty as Sanctions and further disruption to already stretched supply chains add to existing inflationary pressures. It is important to remember that it is not just oil and gas that Russia exports. Expect higher food prices too as more than 15 % of the world’s wheat supply as well as agricultural production exports are affected.
Platinum and palladium and nickel could become increasingly hard to come by as Russian exports dry up, leading to a physical squeeze and in turn higher prices. Oil, copper and indeed gold could all see price spikes over the coming weeks.
At the time of writing, oil prices have hit over 100$ a barrel for the first time, not coincidentally, since 2014.
Russia will of course have prepared for any sanctions and will undoubtedly use its status as one of the world’s largest commodity exporters as leverage in an attempt to avoid any “severe” western actions such as being denied access to the SWIFT banking system. Should Russia’s access to SWIFT be blocked or restricted however, we should expect a further shock to the markets.
As we hope for a quick resolution to the conflict and we wait to see how the situation both politically and economically unfolds, it seems to me that good ol’ GOLD is the surest and safest bet. Then again, isn’t it always?
Interestingly, Russia itself has been steadily increasing its Gold reserves since the annexation of Crimea, more than doubling their strategic Gold reserves since 2014. US dollar reserves have halved during the same time period as part of a wider and very deliberate de-dollarisation of the Russian economy. Russia produces around 10% of the world’s gold.