The price of black gold has hit 14-year peaks from the sanctions on Russia, even if none of those measures were meant for oil. Ukraine’s golden crop is also valued at highs not seen since 2008.
But gold has fallen short of the $2,000 shine its proponents are after—and it’s still a question of when it’ll get there.
Thursday’s runaway rally in US crude and wheat conjured images of the 2008 financial crisis, which marked the last time the two commodities got to highs of above $116 a barrel and $12 a bushel, respectively.
While most commodities had bountiful gains this week, gold, the safe haven that should be soaring on the back of the political and financial fear associated with the Russia-Ukraine war, again stopped before the $2,000 target that longs in the metal have been attempting since the record highs of August 2020.
Charts courtesy of skcharting.com
Since fighting broke out in Ukraine on Feb. 24, gold futures have peaked at $1,976.50 an ounce on New York’s COMEX, versus the all-time high of $2,121.70.
“Gold seems to be steadying above the $1,900 level, but still lacks a clear catalyst to make a run towards the $2000 level,” Ed Moya, analyst at online trading platform OANDA, said after the yellow metal settled Thursday’s COMEX trade at 1,935.90.
Moya said gold remained supported from safe haven flows as Russia’s military offensive advanced in southern Ukraine and potential ceasefire talks with Ukraine got pushed back until next week.
“Uncertainty over the war impact is hitting investor sentiment hard in Europe and that has provided some underlying support for gold,” he said. Adding:
“Gold still looks like an attractive trade, but other commodities are clearly outperforming. Global growth concerns will eventually become recession fears and that should be the key catalysts to send gold higher, but that might take a while longer.”
The question is how much longer?
Ole Hansen, head of commodity strategy at Saxo Bank, said both gold and the dollar were battling for safe-haven status as the Russian ruble plunged.
While gold’s $130 surge over the past month has pushed the market into strongly overbought territory, it was still on course to push forth into $2,000 territory, and “there is not much standing in the way of new all-time highs" said Hansen in comments carried by gold price and commentary provider Kitco.
"Gold has held critical support when markets started pricing in five (US) rate hikes and the US dollar was hitting nearly fresh two-year highs," David Madden at Equiti Capital said, also commenting on Kitco’s site.
"The conflict in Ukraine was an important catalyst for gold, but the market was in an uptrend long before this. I think it could only be a matter of days before gold hits $2,000."
But Citigroup says gold’s surge on the Russia-Ukraine conflict may be short-lived, based on history.
From the Falkland Islands War in 1982 to the Sept. 11 attacks, price spikes in gold resulting from crises that include military action or terrorist strikes tend to be temporary, Citigroup said in a commentary Thursday that was reproduced by Bloomberg.
“Geopolitically-led highs tend to be fleeting; on average, gold prices tend to firm in the immediate aftermath of a risk event and surrender these gains within a month,” Standard Chartered analyst Suki Cooper said, also speaking to Bloomberg.
“As 2022 unfolds, we expect gold to revert to taking its cue from real yields.”
But Aakash Doshi, Citigroup’s head of commodities research in the Americas, countered that geopolitical events that manifest into macroeconomic shocks—such as the 1970s oil embargo, the Latin American sovereign debt crisis in the early 1980s, and the global financial crisis in the late 2000s—can provide a more sustained bid for gold,
“To the extent Russia-Ukraine exacerbates commodities inflation, supply chain bottlenecks, and slows global growth—particularly in Europe—gold prices are likely to be more supported with higher risk premiums and more dovish central bank reaction,” said Doshi.
Last month, Citigroup raised its short-term bullion forecast and reiterated a 30% bull case probability that prices would hit a fresh record of $2,100 an ounce this year. Still, prices could drop to about $1,800 if the situation in Ukraine de-escalates, the bank said. Spot gold traded at $1,945.38 at 8:36 a.m on Friday in Singapore and is up about 6% in 2022.
Inflows into exchange-traded funds on the back of the war in Europe and the economic fallout may also provide a pillar of support for bullion prices, Bloomberg noted. Holdings in gold-backed ETFs could increase by 600 tons this year if concerns over US growth widen, potentially leading to a price spike to $2,350 an ounce, according to Goldman Sachs. Inflows into funds have totaled just above 100 tons so far, Bloomberg data showed.
At Investing.com, our thesis suggests that gold needs an epic event within the Russian invasion of Ukraine to tip it above the $2,000 mark. And that could be the fall of Kyiv, the Ukrainian capital. As a human, it’s the last thing I’d wish to see. But as an analyst, I envisage that—or a parallel event just as powerful—to be the catalyst to provide gold its $2,000 push.
The alternative to the fall of Kyiv could be a 9% year-on-year jump in the US Consumer Price Index for February—coming after January’s 7.5% growth, which was already the highest inflation reading since 1982.
Fundamentals aside, gold’s technicals also suggest the potential for a breakout to $2,034, says my favorite collaborator on commodity technicals, Sunil Kumar Dixit.
“Gold has been trading within a broad range created on Feb. 24 when it tested $1,974 and hit a $1,879 low,” Dixit, chief technical strategist at skcharting.com, said in his analysis of spot bullion.
“From that time, it has been consolidating within the range and we can see a symmetrical triangle formation has developed on the four-hour chart, which has a height of $95.”
The long coiling exercise led to a breakout from the symmetrical triangle pattern when it broke above $1,939, said Dixit.
“Breakouts from such formations are often seen to retest the breakout point before advancing forward to test the next leg higher. Our next upside target would be $1,939 plus $95, equaling $2,034. En route to that would be stops at $1,954, $1,974 and $1,998.”
“Gold is going to hit $2,034, and then crash to $1,834-$1,800 if there’s no follow-through upside momentum. This $200-$230 move will come by this month, or next.”
Disclaimer: Barani Krishnan uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables. He does not hold a position in the commodities and securities he writes about.