The unprecedented isolation of Russia caused by Western sanctions could lead to a rally in commodities. In addition to the obvious increase in oil prices, experts expect a jump in the gold market.
The value of the precious metal jumped sharply at the Asian trade on Monday. Compared to Friday, when bullion sank by 2%, today they tried to make up for losses, rising by 2.2% at the beginning of the session.
Analysts attribute a sharp rise in the price of gold to yesterday's statement by the central bank of Russia. It promised to resume purchases of precious metal on the domestic market, which were suspended almost two years ago.
This decision is nothing more than an attempt to create a financial safety cushion against the backdrop of tough economic sanctions from the West against Moscow.
Over the weekend, the United States and a number of European countries agreed to disconnect major Russian banks from the SWIFT global payment system and take other measures to limit Russia's use of its $630 billion foreign exchange reserve.
Bullion was also supported at the beginning of the new working week by another wave of panic on the US stock market. This morning, the stock experienced the strongest pressure from bears. Thus, at the time of the announcement, the S&P 500 index fell by 2%.
Now investors are digesting the latest geopolitical news. European countries and Canada closed their airspace to Russian aircraft on February 27. Unprecedented measures are aimed at putting pressure on the head of Russia.
On Sunday, Russian President Vladimir Putin gave the order to bring the deterrence forces, including nuclear weapons, into a state of the highest combat readiness.
At the same time, the United States and other Western countries announced yesterday that they are sending military assistance to Ukraine, as Russian troops surround Kiev.
The situation in Ukraine continues to escalate. And this is far from the culmination of the confrontation between the two countries. According to French President Emmanuel Macron, the military conflict will be long.
As the situation worsens, analysts expect a sharp increase in demand for safe haven assets, including gold. The precious metal has already received a strong impetus from the escalation of the Russian-Ukrainian conflict and, it seems, intends to maintain positive dynamics in the short term.
Gold rose by more than 6% in February. This is the best increase in the last nine months. Analyst David Madden is confident that in the current conditions, when the Russian leader escalates the situation with the help of "dangerous rhetoric", prices may reach new record highs in a few days. It is not excluded that gold will trade above $2,000.
Other experts are not so optimistic about the yellow asset. They believe that due to strong geopolitical uncertainty, the gold market will be very volatile this week.
Bullion is still facing a lot of headwinds. One of them is the first stage of the Federal Reserve's interest rate hike scheduled for March.
Expectations that the US central bank will still raise them by 50 bps increased after Friday's publication of the price index of personal consumption expenditures in the US. The indicator rose by 0.6% in January. This indicates that rising prices continue to exert strong pressure on the economy.
The high level of inflation may be a reason for the Fed to tighten its policy more aggressively. This is an unfavorable factor for gold.
The potential risk of decisive action by the US central bank lowered the price of gold to $1,887.6 by the end of last week. Thus, bullion completed the seven-day period with a decrease of 0.6%. This is the first weekly drop of the asset in a month.