Gold futures climbed above $2,000 an ounce on Tuesday, but settled below their highest price on record, as the war in Ukraine fueled bids for safe haven assets like bullion.
Gold’s surge today and in recent sessions is “not only a reaction to the Ukraine situation, but also a sign that shorts in the futures markets are abandoning their battle to keep the price corralled,” said Brien Lundin, editor of Gold Newsletter.
rose $47.40, or 2.4%, to settle at $2,043.30 an ounce and traded as high as $2,078.80, which put bullion at its highest levels in about 19 months. Prices traded near the all-time settlement high of $2,069.40 from Aug. 6, 20202 and intraday record high of $2,089.20 from on Aug. 7, 2020.
“The rally in gold has been accelerating since the Russia/Ukraine tensions began to escalate in earnest back in February, and renewed fears about stagflation are further supporting the gains,” analysts at Sevens Report Research wrote in Tuesday’s newsletter.
“With real rates dropping sharply from recent highs and market-based inflation expectations at new highs, the backdrop for gold is decidedly bullish,” they said.
Despite the rally in gold, some market participants are skeptical about the continued upside in the precious metals. At least one strategist speculated that restrictions on purchasing crypto, such as bitcoin, would prompt Russia’s central bank to dump a chunk of its reserves of gold to get cash.
“The Bank of Russia, for the most part, has no other means but to sell off the gold from its reserves in Russia. These steps could be taken tomorrow, as Monday and Tuesday were national holidays [in Russia],” wrote Alex Kuptsikevich, a senior financial analyst at FxPro, in a Tuesday note.
Thus far, gold prices, and those for other precious metals, have been buttressed by doubts about central bankers’ ability to limit the rise in inflation in the face of the geopolitical tensions.
“Investors are liquidating their positions in risky assets and are hesitant to pump more capital into equity markets,” wrote Naeem Aslam, chief market analyst at AvaTrade, in a research note. “These dynamics have pushed the price of the yellow metals towards $2,000.”
Meanwhile, futures for palladium briefly topped $3,000, with the white precious metal gaining $66.60, or 2.3%, to settle at $2,968.50 an ounce. Prices based on the most-active contract had marked an all-time settlement high of $2,981.90 on Friday.
“While sanctions have not hit Russian producers yet, bans on flights to and from Russia make it hard to get palladium and other products out of the country,” said Peter Grant, vice president and the senior metals strategist at Zaner Metals and Tornado Precious Metals Solutions, in a Tuesday newsletter. “Sanctions on Russian banks have also made it difficult for producers to receive payment.”
A retreat in the dollar, down 0.2%, from a 2020 peak, as measured by the ICE Dollar Index
also was helping to support purchases among overseas buyers.