Commodity Watch

Gold Prices Hit A 13-Month High Amidst Ukraine-Russia War

BY Lynnet Okumu · February 25, 2022 10:02 am

KEY TAKEAWAYS

The metal pierced the USD 1,900 barrier for the first time since June 11, 2021, when the haven rose 1.8 percent high. The move came alongside a major risk-off trade in markets globally as Russia launched an attack on Ukraine.

Gold prices rose steadily on Friday 25^th February 2022 after a volatile session, as investors reassessed the situation surrounding Russia’s invasion of Ukraine and fresh sanctions against Moscow from the West.

On Thursday 24th February 2022, gold crossed 77,765 shillings per 10 gm, the highest in 13 months, as Russia declared war on Ukraine.

Spot gold prices, in particular, jumped by 2.1 percent to USD 1,970 an ounce, hovering around a one-year high. Ukraine tensions have roiled global financial markets in recent days as the US ramped up warnings of a possible Russian attack.

However, the yellow metal has been a solid performer even before Russia’s invasion as traders have looked for bets against elevated inflation, and its prices have gained by about 8.3 percent since early January 2022.

Multi Commodity Exchange (MCX) Gold prices have got additional support from sharp rupee depreciation. Prices are unlikely to fall immediately according to analysts.

For the last 50 – 60 years, gold has always been a stabilizer in a portfolio. Analysts say that the safe-haven demand for gold is offsetting the negative impact of a stronger dollar.

With bonds struggling to provide the usual haven, as this conflict comes with even higher inflation as a product, gold is likely to remain in demand reaching up to $2,000 per ounce.

Experts warn that the rising inflation and the upwards direction of travel for interest rates, and now, confirmation of war and the associated alarming news headlines around the world are likely to see equity markets go through a difficult period for longer than people might have previously expected.

On MCX, the gold rates were at 72,072.30 shillings with a fall of 166.10 shillings on the morning of 25^th February 2022.

In Kenya, the current tax and monetary policy environment creates quite favorable conditions for gold until at least 2023, and the price of the metal could rise by 10–20 percent.

Currently, the markets are seeing strong inflationary processes, which makes one believe that inflation expectations will continue to grow. The real interest rates are a key driver for gold, which in turn will be determined by interest rates and inflation expectations.

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