Ukraine crisis spurs demand for world’s oldest asset

Feb 21, 2022 | BUSINESS

Gold is set for the third straight week of gains as traders assess the geopolitical risks

The price of gold has risen to a nearly eight-month high of $1,902.20 per ounce, driven by safe-haven demand from nervous investors amid heightened tensions between Russia and the West over Ukraine.

The precious metal is set for a third straight weekly gain, which is its longest run this year. The prices fell to $1,897 per ounce later on Monday on the news of an expected meeting between Russian and US presidents this week to halt the escalation of tensions in Ukraine.

Data from Refinitiv Lipper shows investors put money into precious-metal mutual- and exchange-traded funds for the fifth consecutive week through Wednesday. That marks the longest streak since early August 2020, when funds recorded net inflows for 20 consecutive weeks.

“Investors are looking for a geopolitical hedge,” co-chief investment strategist at John Hancock Investment Management Matt Miskin told the Wall Street Journal. “The stars are aligning in essence for a gold breakout.”

According to Miskin, further increases in tensions could send gold above its August 2020 record close of $2,051.50 within months.

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Bank of America analysts have predicted the potential for new highs, saying in a recent note that investors should consider buying more gold if prices break out of a range between $1,860 and $1,880.

Citigroup analysts have also upgraded their near-term price forecast to $1,950 an ounce from $1,825, citing the geopolitical tensions. However, the bank’s outlook also contains a target of $1,750 for a period of 6 to 12 months, as “higher real yields and stronger equities can weigh on bullion prices again.”

The analysts say the longer-term outlook for the precious metal is more challenging, as the Federal Reserve is preparing to raise interest rates.

“The short-term bid for gold driven by Black Sea military tensions, a spike in risky asset volatility, and inflation hedge demand will need to grapple with an increasingly hawkish Fed and higher policy rates come March,” Citi’s head of commodities research in the Americas, Aakash Doshi, wrote in a research note, seen by Bloomberg.

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