Gold rose sharply by $82, pushing gold futures up just $10 below the all-time high of $2,088 seen in August 2020.
Investors are turning to safe-haven assets, and gold is one of them. This triggered a huge rise in gold prices. Geopolitical uncertainty over Ukraine and new sanctions against Russia have created a high demand for gold. Investors treat the precious metal as a hedging instrument against risks, inflation, economic turmoil, and geopolitical uncertainty.
According to Commerzbank analyst Daniel Briesemann, gold ETFs alone have received 55 tons of inflows since the beginning of geopolitical tensions in Ukraine.
In addition, this particular geopolitical conflict has resulted in broader economic and inflation expectations, making its impact on gold more permanent.
On Tuesday, US President Joe Biden announced a ban on Russian oil imports.
The UK also joined the US saying it would ban any imports of Russian oil.
Later that day, Russian Deputy Prime Minister Alexander Novak said that Russia would halt gas supplies to the EU by closing Nord Stream 1, the main Russia-Germany gas pipeline if oil imports from Russia were banned.
Another important factor contributing to gold prices is the current rate of inflation: the consumer price index rose by 7.5% year-over-year in January. The current inflation rate, which is at a 40-year high, is likely to continue rising due to higher prices for both oil and food.
This means an increase in demand for gold, including more buying by central banks, which has a big impact on prices because of the increased volume.
Food prices are also rising around the world. As oil prices rise, so do the costs of food production and transportation. In Europe, food prices are rising even higher as Ukraine exports most of its agricultural products. Ukraine's agricultural exports to Europe have been dramatically affected by the current situation.
As sanctions against Russia continue to tighten, some analysts do not rule out the price of gold approaching $3,000.
This level is possible with potential purchases of gold by central banks and uncertainty about the Federal Reserve's rate hike.
On Thursday, March 10, the US government will release an update on the current inflation rate, based on a surge in oil prices and higher food prices. It is certain to rise from current levels.
