The gold market hit a new all-time high today as risk aversion remains strong. News of a ban on Russian oil imports is playing a role today and the price of crude is higher by several percent. Higher prices for crude play into the ongoing inflation narrative, and stronger values for oil could translate into further gains for commodity prices across the board. Worries over global inflation combined with the ongoing Russian/Ukraine war are enough to drive investors into the perceived safety of gold. The market could now see itself off to the races, as there is no chart resistance ahead for higher prices.
Gold rising by over $80 per ounce today is impressive. We believe, however, that today’s price action was only a matter of time. What will be even more impressive, in our view, is when gold continues to trend higher and deeper into new all-time high territory. Some analysts have suggested today that $3000 per ounce gold is likely to be seen next. Such a move could happen, and happen quickly. Ongoing worries over inflation along with a deteriorating geopolitical scene could make gold the go-to asset class of the year. Investors appear to be viewing gold as an inflation, geopolitical and economic hedge, and that may keep buyers flooding into the market especially if recent strength is maintained.
A de-escalation in Ukraine could have a major bearish impact on the price of gold, however, such an impact would likely be only for a short time. While the war in Ukraine is certainly adding to gold’s allure right now, the yellow metal is also moving higher due to inflation, lower stocks and other potential risks. A ceasefire in Ukraine could cause a short-term decline in the price of gold. Such a decline could be aggressively bought, however, as investors look to get on the rally train and participate in any further upside the metal may see.
As the U.S. and U.K. ban Russian oil, the price of crude stands to rise substantially further. Oil today is up over $3.50 per barrel, and in earlier action the crude market saw prices rise to nearly $130 per barrel. Russia has suggested that a rejection of their crude oil could play havoc on global markets and that the price of crude could soar to $300 per barrel or higher. While crude is nowhere near $300 per barrel as of yet, time will tell if the market does keep moving higher as demand remains robust among dwindling supplies. Either way, elevated crude oil prices may keep many commodities elevated and that will in turn keep inflation up for some time to come.
As Russian sanctions continue to take a toll, central bank buying in gold could see a lift this year. Due to the typical volumes involved, any central bank activity may keep the price of gold on the ascent and could keep individual investors motivated to buy as well.