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Gold and the Russia-Ukraine conflict

The gold situation in summary:

The gold price has historically risen during times of uncertainty and political unrest. War is the pinnacle of these two factors, so the situation in Ukraine is having a wide-reaching impact on the gold price.

  • The price of gold rose around 7% in February; a substantial monthly gain.
  • Gold’s trading high this week has been at a rate of £1,478 per troy ounce.

The gold price has historically risen during times of uncertainty and political unrest. War is the pinnacle of these two factors, so the situation in Ukraine is having a wide-reaching impact on the gold price.

The assault on Ukraine, ordered by President Vladimir Putin, in the early hours of Thursday 24th of February, was one of the most prolific attacks committed by one state on another in Europe in recent years and there is widespread concern over the scale of the conflict.

As things stand, the situation is getting worse. There have been reports that several cities within the country of 44 million people are under siege. This is a sobering fact, and with this information in mind, the consequences to human life and the global economy are likely to increase as the political situation unravels before us. World markets have dropped sharply. We must consider that the global market was not expecting a fully-fledged war.

Russia is wreaking havoc. In the wake of this, gold’s trading high this week has been at a rate of £1,478 per troy ounce at the time of writing and looks set to rise further. In short, the conflict between Russia and Ukraine and its path is paved with unknowns – which is one of the elements that tends to maintain and push up the value of gold.

Instability in the global markets

Russian forces have invaded Ukraine from the regions of Donbas in the east, Belarus to the north and Crimea in the south. The country is at war, sirens are ringing in the capital city, and there is a mood of fear overshadowing the country. The most poignant repercussions of this conflict will be human suffering and loss and the partial destruction of Ukraine’s infrastructure. Missiles have been launched, and casualties are already building up.

In a more practical light, global crises such as these impact the functioning of the world economy. As we’ve seen before, tensions between countries can push up the price of gold.

For example, in late 2017 and early 2018, gold prices rose in conjunction with geopolitical tensions surrounding North Korea and tensions between America and China. Other examples of when gold flourished were during 2011 when there was a congressional conflict regarding the US debt ceiling. There was also the potential for the eurozone to break up, which further drove demand for investing one’s finances in something independent of sovereign currencies.

Inflationary pressure

With the conflict in Ukraine, oil and soft commodity prices have also risen dramatically. International benchmark Brent crude overtook $100 for the first time in 8 years. These mounting signs of inflation are worth paying close attention to.

In the 1980s, gold rose in value when the Islamic revolutionary regime in Iran encouraged a sense of fear surrounding the partially oil-driven inflation of the 1970s. Indeed, inflation in the 70s was made worse by oil embargoes that caused energy prices to soar, slowing economies down and fuelling inflation. This could be compared to the current demand surge that has come about with the unlocking of the COVID-19 shutdown.

However, the Russia-Ukraine conflict will inevitably affect the price and supply of oil since Russia is one of the most prolific energy providers in the world. Russia is one of the largest energy producers, and both Russia and Ukraine are among the top exporters of grain. There is no doubt that this will cause a surge in prices for exports which will cause an imbalance within individual economies across Europe and beyond.

There has already been a supply crisis regarding energy due to the pandemic. And with current developments, this problem is likely to deepen. Whether it's a conflict or a global pandemic, investors will seek alternative means of storing their finances when stocks and shares prove unpredictable.

Gold has historically performed as a safe haven during times of high inflation. It offers a place to store wealth that has previously held its value, if not increased, during such periods of turmoil.

Safe havens are appealing to investors when volatile holdings such as stocks and bonds, whose value relies on confidence in the harmonious functioning of the global economy, prove unreliable. The price of gold tends to increase as inflation rises and while there is no guarantee that this trend will continue, it has proven itself enough to attract the attention of many investors.

Gold price on the rise

As is typical in times of global crises, the price of gold tends to rise. However, only a couple of weeks ago, there was speculation that gold would plummet because of the possible easing of tension between Ukraine and Russia.

This has certainly not been the case, as we can now see, and so it looks like the value of gold is set to carry on increasing. Gold hit its highest point in over a year today and is up around ten per cent this year. On the 24th of February, when the attack on Ukraine occurred, gold rose again, hitting a more than a one year high. This is a reaction to the instability of markets across all countries and the perceived need to seek refuge in the perennial safe-haven metal. As we’ve outlined in this article, gold can be one of the most efficient investments in times of political unrest. So, if you’re looking to introduce a level of harmony to your investment portfolio, buying gold may be one of the safest options. We can provide you with both gold coins and gold bullion bars, with several options to choose from.

Get in touch with The Gold Bullion Company today to learn more about the benefits of buying gold.


Article Last Updated: Friday, March 4, 2022