Gold is traditionally considered a safe haven in times of turmoil. Ewa Manthey, a commodities strategist at ING, said its “historic rally” had been spurred by conflicts in the Middle East and Ukraine. Its price has surged by 111 per cent since Putin’s invasion in February 2022.
“The move higher in gold has been driven by two forces, firstly the significant increase in central bank purchases since the Ukraine conflict and secondly a more recent drive from retail investors, where we’ve seen a significant increase of flows into ETFs [exchange-traded funds], for example,” says Eren Osman, of private bank Arbuthnot Latham.
The Ukraine war is one of numerous crises that have swept the world in recent years, ranging from the pandemic to Donald Trump’s trade war and concerns about rising government debt levels.
“Funds and global reserve managers want a hedge against fiscal recklessness, currency debasement, and unpredictable government policy, and gold sits squarely at the heart of that movement,” says Chris Weston, an analyst at broker Pepperstone.
Gold has also surged as interest rates begin to fall around the world following a period of steep increases in the aftermath of the pandemic. Investors widely expect the US Federal Reserve to cut interest rates this month. Lower rates weaken the dollar, making it cheaper for buyers of gold who do not use the US currency.
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Tai Wong, an independent metals trader, told Reuters: “There’s so much faith in this trade right now that the market will look for the next big round number, which is 5,000, with the Fed likely to continue to lower rates.
“There will be some bumps in the road, like a lasting truce in the Middle East or Ukraine, but the fundamental drivers of the trade, massive and growing debt, reserve diversification, and a weaker dollar are unlikely to change in the medium term.”
Russia has by no means been the only beneficiary of gold’s price surge. China has also hugely boosted its reserves in recent years and has the seventh-largest hoard in the world.
Meanwhile, the US remains the world’s largest gold holder with 8133 tonnes, now valued at $US1.04 trillion. It is the first time any nation’s reserves have surpassed the one trillion US dollar threshold.
Britain’s stockpile is pitifully small by comparison. The Bank of England holds 310.3 tonnes of gold in its reserves, worth around $US40.1 billion, after Gordon Brown’s decision as chancellor in 1999 to sell half of Britain’s reserves, fetching just $US3.5 billion by 2002.
Trump has been exerting fresh economic pressure on Russia in recent months in an effort to pressure Putin into peace. However, the Russian president will be able to rely on rising gold prices for a while to come, according to Wall Street’s biggest banks.
Donald Trump’s America is the world’s largest gold holder with 8133 tonnes, now valued at $US1.04 trillion. Credit: Bloomberg
Goldman Sachs this week forecast bullion would reach $US4,900 an ounce by December next year, up from its previous estimate of $US4,300. It expects this 23 per cent rally to largely be fuelled by central banks, with emerging markets “likely to continue the structural diversification of their reserves into gold”.
Yet not everyone is convinced that gold’s winning streak can last forever. Joost van Leenders, of private bank Van Lanschot Kempen, says gold is now “extremely expensive” compared to other assets like bonds or oil.
“Gold is an interesting investment at times of uncertainty, but given its high price, a large amount of uncertainty and/or lower interest rates have already been priced in,” he says.
Osman, of Arbuthnot Latham, suggests the market may be acting irrationally. “Its extended rally this year could quite easily be met with a near-term correction,” he says.
None of that will be of much concern in the Kremlin. Barring a catastrophic and historic price crash, Putin will still have hundreds of billions of dollars worth of bullion to draw on.
The Telegraph, UK
