Unprovoked Russia’s war on Ukraine has entered its second week and it is no surprise that traders are looking for safety wherever they can find it. Right now that happens to be the U.S. dollar and gold. The war is creating major global economic uncertainty. The Russia economy is all but crippled as businesses cut ties with the aggressor nation.
As anticipated, the war impacts oil prices. Supply disruptions have pushed prices back above $100 a barrel, to their highest level since 2008. Rising energy prices is adding pushing inflation pressures higher. This environment continues to create major volatility in equity markets, which hovers in correction territory.
With less and less alternatives, investors are turning to gold and precious metals en masse. Prices ended the week with an impressive 4% gain and many analysts continue to say that its only a matter of time before prices push above $2,000 an ounce. Gold’s rally Friday is even more impressive when looked at the economic backdrop. The better-than-expected data was less than a speed bump for gold as prices have pushed through $1,950 an ounce.
Recently EU countries, along with the U.K., U.S., and Canada, moved to freeze Russia’s assets. According to Statista, around 25 percent of Russia’s reserve assets were held in France, Germany, and Austria. The total reserves held in Eurozone stood at about 32%, a significant figure. The report said that about 21.7% of the total central bank reserves are gold.
Longer-term, as there is a flight of capital from Russia, gold could start to look even more attractive. On Monday, it was reported that Russia’s central bank said it would resume buying gold on the domestic market from this week. It is taking these measures to try and ensure financial stability during Western sanctions against Moscow for its invasion of Ukraine.