FX.co ★ Gold spikes to yearly high as Russia recognizes independence of Ukraine separate regions

Yesterday, Russia recognized the independence of the so-called "Donetsk People's Republic" (DPR) and the "Luhansk People's Republic" (LPR). Vladimir Putin ordered Russia's military to maintain peace in two separatist regions of Ukraine. The recognition of separate regions has been met with condemnation from the West. Gold surged amid such news.

On February 21, the Russia-Ukraine conflict evolved into a new phase. Separatist leaders in Donetsk and Luhansk regions appealed to the Russian leader. They asked him to recognize the independence of these republics.

Russian President Vladimir Putin signed a decree recognizing "Donetsk People's Republic" (DPR) and the "Luhansk People's Republic" (LPR) as independent. After that, he asked the Russian Parliament to ratify his decision as soon as possible.

Reaction of the US and EU

This move caused a wave of outrage in the West. The United Nations called an emergency meeting. Members of the alliance stressed that it could be a pretext to invade Ukraine, which would inevitably lead to war.

The President of the European Commission, Ursula von der Leyen, called the recognition of the 2 separatist regions as independent a violation of international law and the Minsk Agreements. "The recognition of the two separatist territories in Ukraine is a blatant violation of international law, the territorial integrity of Ukraine, and the Minsk agreements. The EU and its partners will react with unity, firmness, and with determination in solidarity with Ukraine," she said.

She noted that the European Union would impose sanctions against people responsible for these actions. Meanwhile, British Foreign Office and Foreign Secretary Elizabeth Truss also said that the UK would announce retaliatory measures on February 22.

US President Joe Biden has already signed an executive order that prohibits US citizens from investing in projects in Donetsk and Lugansk. He also added that the US would introduce new restrictions.

Canada and Australia voiced their readiness to impose new sanctions against Russia. At the same time, Japan warned about the possible termination of technology exports, in particular semiconductors.

Gold

Growing geopolitical tensions in Eastern Europe have weakened demand for risky assets. Trades refocused their attention on safe-haven assets such as gold. In times of geopolitical risks, investors always add gold to their portfolios.

On Monday evening, when the Russian president sent troops to the Donetsk and Luhansk regions, gold prices skyrocketed. On the Globex electronic trading platform, its quotes rose by 0.64% to $1,912.10. The last time gold settled at such a high level was about a year ago.

At the time of writing this article, futures for gold continued to move up. They grew by 0.7% to $1,913.60.

Analysts believe that today the headlines on the conflict between Russia and Ukraine will be in the spotlight as well as comments from world leaders on the recognition of the independence of Ukraine's separate regions. Therefore, gold is likely to move higher.

Another bullish factor is the reopening of US trading floors after the celebration of Presidents' Day.

According to experts, the main catalysts for gold are geopolitical tensions and a rate increase by the Fed. Last week, Fed policymakers said that they had not decided yet how many rate hikes would be.

It reduced the likelihood of a rate increase by 50 basis points in March. As a result, the 10-year government bond yield declined. On Tuesday morning, it fell from a 2-year high reached last week, which was also bullish for gold.