Gold near 19-month high as ban on Russian oil drives flight to safety

Gold held near a 19-month high following a ban on Russian oil imports, as mounting concerns over inflation and economic growth boost demand for the haven asset.

Bullion has gained 12% in 2022 and is closing in on a record as investors seek a store of value amid the threat of an inflationary shock to the global economy.

Holdings in gold-backed exchange-traded funds have climbed to the highest since March 2021, with inflows of about 152 tons this year, according to initial data compiled by Bloomberg.

The impact of the war in Ukraine and sanctions on Russia have reverberated across the globe, driving commodities higher on supply woes. The latest move by the US and the UK to ban Russian oil imports has stoked further fears over intensifying price pressures as costs of raw materials such as food, energy and metals costs surge.

“The ban on Russian oil by the US is causing more inflation jitters,” said Howie Lee, an economist at Oversea-Chinese Banking Corp. “We all saw that coming, but still, it feels like a roller coaster drop moment. With this ban, oil is easily expected to trade at new records. By that correlation, it is not difficult to see why gold may also be trading at a new record high soon.”

Spot gold was little changed at $2 049.46 an ounce at 6:28 a.m. in London. Prices touched $2,070.44 on Tuesday, just $5 short of an all-time high reached in August 2020.

Nominal gold prices should breach $2,125 over the next three months and trade in a higher range for the rest of 2022 as “financial markets grapple with surging headline inflation, geopolitical uncertainty, and recession tail risks,” Citigroup Inc. analysts including Aakash Doshi said in a report dated March 8.

Palladium advanced 1.8% on concerns over potential supply disruptions as Russia produces about 40% of the metal mined globally. Silver and platinum both traded near June highs.

© 2022 Bloomberg