Russia profits from rising bullion prices amid Ukraine war and global turmoil

Gold is traditionally considered a safe haven in times of crisis. ING commodity strategist Ewa Manthey said the “historic rally” was driven by conflicts in the Middle East and Ukraine. Its price has increased by 111 percent since Putin’s invasion in February 2022.

“The rise in gold has been driven by two factors; first, the significant increase in central bank purchases since the Ukraine conflict, and second, recent moves by retail investors where we have seen a significant increase in flows into ETFs. [exchange-traded funds]For example,” says Eren Osman of private bank Arbuthnot Latham.

The Ukraine war is one of several crises that have gripped the world in recent years, from the pandemic to Donald Trump’s trade war to concerns about rising government debt levels.

“Funds and global reserve managers are looking for a hedge against fiscal recklessness, currency depreciation and unpredictable government policy, and gold is at the heart of this movement,” says Chris Weston, an analyst at broker Pepperstone.

Gold also started to rise as interest rates around the world began to fall, following the sharp rise following the pandemic. Investors generally expect the US Federal Reserve to lower interest rates this month. Low interest rates weaken the dollar, making it cheaper for gold buyers who do not use U.S. currency.

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“There is so much belief in this trade at the moment that the market will look for the next big number, 5,000, and the Fed will probably continue to cut interest rates,” independent metals trader Tai Wong told Reuters.

“There will be some bumps in the way, such as a permanent ceasefire in the Middle East or Ukraine, but the key drivers of trade, huge and growing debt, reserve diversification and a weakening dollar, are unlikely to change in the medium term.”

Russia was certainly not the only country benefiting from the increase in gold prices. China has also greatly increased its reserves in recent years and has the world’s seventh-largest hoard.

Meanwhile, the US remains the world’s largest holder of gold, with 8,133 tonnes currently valued at US$1.04 trillion. It is the first time that any country’s reserves have exceeded the one trillion US dollar threshold.

Britain’s stock is pitifully small in comparison. Following Gordon Brown’s decision as chancellor in 1999 to sell half of Britain’s reserves, the Bank of England has 310.3 tonnes of gold in its reserves, worth approximately $40.1 billion; this figure reached only $3.5 billion by 2002.

Trump has been applying new economic pressure on Russia in recent months in an attempt to persuade Putin to make peace. However, according to Wall Street’s largest banks, the Russian president will be able to count on rising gold prices for a while longer.

Goldman Sachs this week bullion is predicted to reach $4,900 ounce by December next year, up from the previous forecast of $4,300. He predicts that this 23 percent rise will be largely driven by central banks and that emerging markets are “likely to continue to structurally diversify their reserves into gold.”

But not everyone is convinced that gold’s winning streak will last forever. Gold is now “extremely expensive” compared to other assets such as bonds or oil, says Joost van Leenders of private bank Van Lanschot Kempen.

“Gold is an interesting investment in times of uncertainty, but given its high price, a large amount of uncertainty and/or low interest rates are already priced in,” he says.

Arbuthnot Latham’s Osman suggests that the market may be acting irrationally. “This year’s extended rally could easily be countered by a short-term correction,” he says.

None of this will be of much concern to the Kremlin. Barring a catastrophic and historic price crash, Putin still has bullion worth hundreds of billions of dollars.

Telegraph, United Kingdom