Gold futures rose sharply Thursday morning, trading near highs not seen since June last year, as a flare-up in tensions between Russia and Ukraine renewed concerns about a wider military conflict.
Officials supporting Russia in the Donbas region have accused Ukraine’s armed forces of launching grenades and mortar attacks into the Russia-backed region, which would be a breach of cease-fire agreements.
The accusations come as Moscow has been seen continuing to build up troops along the Ukraine border, despite claiming that it is withdrawing forces, according to U.S. intelligence.
Gold has been reacting to the geopolitical tensions in Eastern Europe, as well as evidence that inflation is surging in many parts of the world in the aftershocks from the COVID-19 pandemic.
Against that backdrop, gold for April delivery
was trading $16, or 0.9%, higher at $1,887.50 an ounce, following a 0.8% gain on Wednesday, which had marked the highest settlement for the most-active contract since June 11, FactSet data show.
The upside for gold, however, has been somewhat limited by concerns about central banks plans to raise interest rates to combat high inflation. The minutes released from the Federal Reserve’s late-January policy gathering, however, didn’t imply that the central bank was adopting a more hawkish stance than investors have already anticipated.
Fawad Razaqzada, market analyst at ThinkMarkets.com, said gold has found support from several major sources.
“These include: (1) heightened geopolitical risks and stock market volatility; (2) falling real yields, and more to the point (3) soaring inflation,” he wrote in a Thursday note. Real yields refer to the rates of bonds adjusted for inflation.
“Inflation has reached multi-decade highs around the world, and a record high in Eurozone. Although soaring inflation has raised concerns about policy tightening from the Fed and other major central banks, this has been offset by the fact real yields haven fallen sharply, boosting the appeal of non-interest-bearing assets like gold,” he said.
The analyst said that current levels for real yields suggest that they could still support buying in precious metals which don’t offer a coupon even if the Fed tightens policy by lifting rates as is expected in 2022.