Early today, Russia launched a special military operation in the Donbas region. The global markets were shaken, whereas gold prices skyrocketed. According to some forecasts, it is just the beginning of a rally.
The 24 of February may go down in history as Black Thursday. Early in the morning (Moscow times), Russian President Vladimir Putin announced the beginning of a special military operation in the Donbas region. Yesterday, leaders of the breakaway regions asked Russia's leader to help them to withstand aggression.
Vladimir Putin said that the Kremlin is not planning to occupy Ukraine. However, he made it clear that Russia would not allow Ukraine to get a nuclear weapon.
On Wednesday, Ukraine's President Volodymyr Zelensky signed a decree on calling up reservists during a special period and introduced the state of emergency starting from February 24.
Meanwhile, the Russian embassy in Kiev began the evacuation. It is a really bad sign that may point to a fully-fledged military conflict.
Meanwhile, Western countries imposed additional sanctions against Russia. The EU blacklisted some Russian lawmakers, freezing their assets and banning them from traveling. The US reported punitive measures against the company responsible for the construction of the Nord Stream 2 gas pipeline.
The conflict escalation caused a wave of panic in the stock markets. On Wednesday, shares of most companies plummeted since investors were searching for safer assets amid geopolitical tensions.
The mounting demand for gold boosted its price by 0.2% or $3. Gold closed the trading day at the level of $1,910.40, reaching the highest level since January 2021.
Today, the precious metal opened with a confident rise. Troubling news raised investors' appetite for the safe-haven asset.
At the moment of writing the article, gold was trading above $1,942. Compared to yesterday's close, the price jumped by $32 or 1.7%.
Most analysts think that in the next few days, gold may test even higher levels if tension does not ease.
Otherwise, the market situation may become unstable. In addition, inflation may show a new jump. Now investors are concerned that sanctions against Russia may push up oil prices to new all-time highs.
Expecting the most devastating war last seen in 1945, the global economy may go through bad times. All this may create favorable conditions for gold that usually appreciates during a crisis.
Analysts at Wells Fargo suppose that even the key interest hike by the US Fed will hardly cap the rally in gold prices. The first stage of the monetary policy tightening is scheduled for March.
"Interestingly, gold, after struggling in the months leading up to the initial rate hike, has tended to rebound higher — and even outperform the S&P 500 Index — in the months following. In other words, we believe gold can still shine in the shadow of Fed rate hikes," Wells Fargo's investment strategy analyst Austin Pickle said.
According to the estimates provided by Wells Fargo, gold may cost $2,000-$2,100 per troy ounce by the end of 2022.