Peter Hobson

LONDON (Reuters – The risk of Russia attacking Ukraine will cause gold prices to soar to records, according to analysts. This is because demand for the metal that was once considered a safe place to store wealth increases.

On Tuesday, prices reached $2,069.89 per ounce, just a fraction of 2020’s record high of $2,072.50, and up significantly from $1,800 in the beginning of this year.

Friday’s gold trade was around $1,980

Graphic: Gold prices: https://fingfx.thomsonreuters.com/gfx/ce/gkplgaeblvb/GOLD%20RUSS.JPG

Russia is a significant producer of commodities. The invasion of Ukraine by Russia has resulted in sanctions, boycotts and large price rises for Russian oil, gas and metals. This will have a negative impact on global growth.

Giovanni Staunovo from UBS said, “Higher food and energy prices predict further inflation surprises ahead. Which should keep U.S. Real Interest Rates lower for longer.”

This will help gold which can be used to hedge against both inflation and economic or political uncertainties. When bonds return low, gold is more appealing.

Graphic: Gold and U.S. real yields: https://fingfx.thomsonreuters.com/gfx/ce/mopandrwwva/GOLD%20RUSS%20YIELDS.JPG

Goldman Sachs (NYSE -) has raised its forecasts. The company stated that investors, central bankers, and buyers of jewellery and other gold products were all increasing purchases. Gold might reach $2,500 by the end of six months.

Analysts at Goldman Sachs stated that “the last time we saw major demand drivers accelerate simultaneously” was 2010-2011, when gold rose by nearly 70%.

Russia’s central bank stated last month that it would buy more gold. Goldman also suggested that other central central banks might want more gold after sanctions were imposed on Russia.

Graphic: Gold demand: https://fingfx.thomsonreuters.com/gfx/ce/zdpxokeqavx/GOLD%20RUSS%20DEMAND.JPG

The latest information showed that speculators had increased the net long position of the COMEX exchange from 6.25 millions ounces to early February’s 6.25 million ounces to March 2 (520 tonnes), and was worth $33 billion.

Graphic: Gold positioning: https://fingfx.thomsonreuters.com/gfx/ce/znvnenglnpl/GOLD%20RUSS%20SPECS.JPG

The World Gold Council reports that investors also put money in exchange traded funds, whose gold bar stock grew by 3 million ounces (94 ton) over the 10 days preceding March.

Graphic: ETF stockpiles and gold prices: https://fingfx.thomsonreuters.com/gfx/ce/gdpzybgkjvw/GOLD%20RUSS%20ETFS.JPG

Staunovo, UBS, cautioned against betting big on price gains. Either a less severe economic impact or an improvement in the Ukraine’s situation, money could flow into equity markets while bond yields may rise.

Staunovo stated that in order to be bullish about gold, there would have to be a stagflation event sending global growth lower.