Gold market experienced extreme volatility after Russia invaded Ukraine. The price of the precious metal spiked to the highest point since September 2020 before falling back.
Russian president Vladimir Putin started the war against Ukraine on February 24, proclaiming its goal was to "demilitarize" the country. Explosions rocked several Ukrainian cities early in the morning.
As news came in, investors gauged the war's potential risks for their portfolios.
Traders shifted from stocks and crypto to USD and gold as market players worldwide became increasingly risk-averse.
At midday, gold jumped above $1,970 per ounce in just a few hours, reaching the highest point since September 2020.
Alarming news from Kyiv, Kharkov, Odessa, and other major Ukrainian cities pushed gold up by 3% or $60.
According to Paul Wong, market strategist at Sprott, falling demand for risk assets helped gold break out of a one-and-a-half year-long bullish consolidation.
The precious metal pared some of its gains after US president Biden announced new sanctions against Russia, forcing investors to re-examine the situation.
US sanctions would target banks and Russian state industries, Biden said. Furthermore, Russia would no longer be able to conduct business in other currencies, such as the US dollar, the euro, the pound sterling and the Japanese yen.
The US president also stated the sanctions package was aimed at putting long-term pressure on the Russian economy while minimizing their impact on the United States and allies.
Biden pointed out that sanctions should not be detrimental for the energy market, and called on US oil and gas producers not to hike prices. The US would release oil from the Strategic Petroleum Reserve, if necessary, he added.
The US stock market rallied after Biden's statements.
Demand for gold decreased as traders returned to risk assets. The precious metal slumped over the next several hours, but managed to finish the volatile trading day in positive territory. Futures with delivery in April gained 0.8% or $15.90, reaching $1,926.30 per ounce.
After closing, gold continued to slide down, dipping below $1,900. The commodity lost about $80 compared to the intraday high.
Some analysts attribute gold's slump to increased expectations of Fed monetary tightening amid the crisis between Russia and Ukraine.
Inflation could once again reach a record high level in the near future, forcing the US central bank to take more hawkish measures to tackle rising prices.
Hawkish sentiments gave support to the US dollar, which remained strong as a defensive asset. Furthermore, positive macroeconomic data pushed the dollar up.
US GDP increased by 7%, while the number of initial jobless claims fell to 232,000, down from 249,000 a week ago.
Stronger USD has put pressure on gold, but the commodity's rally is far from over. Many experts think gold is undervalued and should go up amid rising geopolitical and inflationary risks.