Wealth Guide: Gold and Silver attract attention as Ukraine-Russia war unsettle investors

Gold is considered a safe-haven asset during times of economic and political uncertainty, a hedge against inflation and an alternative asset to equities.

We spoke to Madhavi Mehta – Associate Vice President - Commodity Research at Kotak Securities to decode where gold is headed amid geopolitical concerns:

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All of these attributes came into play this week and helped push gold to multi-month highs. The Spot gold in the international market hit a high of near $1974/oz -- the highest level since Sept.2020.

Gold however came off the highs and stabilized near $1900/oz level.

After weeks of denial that it wants to invade Ukraine, Russia launched a massive attack on Ukraine from a massive front.

In response to Russia’s aggression, the US and other countries-imposed sanctions against Russia targeting its banks, institutions and elites.

Instability in the Eastern European region caused panic across financial markets and market players moved from riskier assets to safe havens, and this benefitted gold prices.

Gold has been on a firm footing this year as inflation pressure has been rising in the US and globally. Since Russia is a major producer of many commodities, increased Russia-Ukraine tensions fueled supply risks and pushed commodity prices higher.

Crude oil prices surpassed $100 per barrel for the first time since 2014. Rising commodity prices added to inflation concerns and this lent support to gold prices.

Gold underperformed last year as market players chose growth-linked assets. However, Gold attracted investor interest this year as inflationary pressure and monetary tightening expectations increased challenges for the equity market.

The latest geopolitical development gave further reason for investors to shift to other asset classes.

Silver also witnessed sharp gains this week as it benefitted from the concurrent rise in gold and industrial metals. Gold rallied on safe-haven buying while industrial metals benefitted from supply risks.

ETF flows however showed that investors are not buying at current high levels.

Gold has hit fresh highs which shows strong upward momentum however the recent rally is largely hinged on Russia-Ukraine tensions, so we are bound to see volatility.

However, with no serious efforts to subside tensions and ongoing Russian assault on Ukraine, it is difficult that risk sentiment may improve significantly, and this may keep prices supported.

Only once, the geopolitical situation normalizes, we may see the focus shifting back to a possible US Fed rate hike in the month of March which could become a hurdle in gold’s rally.

Silver may witness additional volatility as both gold and industrial metals movement are hinged on geopolitical development. However, since gold is expected to remain firm, it may support silver as well.

(Disclaimer: The views/suggestions/advices expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)