Western politicians continue to tighten sanctions on the Russian economy. This raises concerns over global inflation, resulting in increased demand for safe-haven assets. On Thursday, gold prices reached a more than one-week high. The asset rose by $24.90, or 1.3%, to $1,962.20 from the previous close.
This growth can be attributed to a deterioration in relations between Russia and the West due to the military operation in Ukraine. As you know, it has been going on for more than a month and has led to Russia's near-total economic isolation. Yesterday, the already extensive list of sanctions against Moscow was extended by several more packages. The measures were taken as a result of three international summits that took place in Brussels. An extraordinary meeting of NATO countries, a meeting of G7 leaders, as well as a summit of the European Union were held in Belgium's capital. All these events were attended by US President Joe Biden.
As a result of the emergency meeting of the North Atlantic Council, its members approved big increases in the forces deployed on its eastern flank. Thus, the Western alliance will deploy four new battle groups across Slovakia, Romania, Bulgaria, and Hungary. Meanwhile, G7 and EU leaders also agreed on a new package of economic sanctions against Russia. All these measures have led to an escalation of geopolitical tensions. Against this background, investors' appetite for safe-haven assets has increased. Yesterday, gold prices were also supported by the decision of the US Treasury Department to block financial transactions with Russia's central bank that involve gold. This step will deal a devastating blow to the Kremlin, analysts believe.
Even the hawkish comments of US Fed officials failed to limit gold's rally. This week it has become known that the US regulator is considering raising interest rates by 50 bp in May to curb rising inflation. Many economies in the world are now experiencing inflationary pressure, while a sharp rise in energy prices caused by sanctions on Russia raises fears about further strong price increases. Against this background, many investors are reviewing their portfolios in order to protect funds from inflation. This is the reason for high demand for gold, which is considered a high-efficiency tool for hedging financial risks.
"Gold could well attract more suitors who hold to the precious metal as a safe haven and an inflation-hedge, especially if stagflation risks become more amplified over the near term," market strategist Khan Tan noted. His colleague David Meger also believes that this year, the yellow metal will benefit from strong inflationary pressure, which remains the main driving factor for gold. Besides, the conflict in Ukraine adds confidence that the precious metal is likely to see a spectacular rally.
