Russian President Vladimir Putin has made a decision to conduct special military operations in the Donbas region on the 24th local time, China Central Television reported. Shortly afterwards, Ukrainian President Zelensky released a video saying that he was in talks with Western leaders to form an anti Putin alliance to support national defense and close Ukraine’s airspace to Russian Airlines.
With the deterioration of the situation in Russia and Ukraine, the yields of most euro zone government bonds fell sharply at the opening on the afternoon of Beijing time on the 24th, and the yields of most 10-year Treasury bonds fell by 5-8 basis points. As of press time, the decline of Russia RTS index has expanded to 30%; European natural gas futures rose 35% to nearly $1400 per 1000 cubic meters
Due to the rising panic, safe haven funds flowed into the gold market, and the international gold price rose strongly. As of press time, dollar denominated gold once rose to $1948.34/oz, a new high since January 2021. The rise of gold price also promoted the sharp rise of A-share gold concept stocks, Western Region Gold Co.Ltd(601069) , Hunan Gold Corporation Limited(002155) , Chenzhou City Jingui Silver Industry Co.Ltd(002716) the daily limit today, Yintai Gold Co.Ltd(000975) , Zhongrun Resources Investment Corporation(000506) , Chifeng Jilong Gold Mining Co.Ltd(600988) and other collective stocks.
Can gold break through the $2000 / oz mark?
Data show that the global commodity market may be at a stage of tension that has never been so intense in 15 years. At Wednesday’s close, the prices of 23 categories of energy, raw materials and crop futures constituting the Bloomberg commodity index were about 6% higher than one-year forward contracts, which was higher than the spot premium rate at the end of any month in at least 15 years. Jeffrey Currie, head of commodity research at Goldman Sachs, warned again on Wednesday that the conditions for “super spike” of commodities were met.
JPMorgan pointed out in its latest research report that the escalation of the geopolitical situation in the past few days has increased the risk of further aggravation of the imbalance in the commodity market. In this context, given Russia’s far-reaching impact on the global commodity market, Natasha kaneva, commodity strategist at JPMorgan Chase and his team warned that “global geopolitical tensions and high risk premiums for all commodities may last for a long time.”
In JPMorgan Chase’s view, it is difficult for gold to avoid the rising tide of commodities. JPMorgan believes that the rise in the risk premium of the Russian Ukrainian crisis in the next few quarters may be longer than previously expected, so as to reduce the downward pressure on gold when interest rates rise. Therefore, JPMorgan’s average price of gold for the whole year of 2022 increased by 11% to US $1808 / ounce.
Jeff Halley, senior Asia Pacific market analyst at OANDA in Singapore, said in response to a request for comment from the daily economic news, “With the development of the situation in Russia and Ukraine, I expect the gold price to test the position of US $1960 / oz next, and then rise above US $2000 / oz in the next few days. In addition, I also believe that the gold price will rise above US $2100 / oz in the next few weeks, reach an all-time high, and may make a breakthrough faster.”
The Pacific Securities Co.Ltd(601099) Li ShuaiHua, chief analyst of securities non-ferrous metals industry, pointed out to the reporter of daily economic news that “(the rise of gold at this stage) is mainly due to risk aversion, which has the most stimulating effect on the price of gold. Other precious metals, including silver, are also rising, mainly fluctuating with gold.”
He said, “if the situation in Russia and Ukraine continues to deteriorate, the gold price may hit the previous high. The gold price has also fluctuated for a long time, probably bottoming out in August last year. The last record high was mainly due to the global covid-19 pneumonia epidemic, which was caused by the release of water from the major central banks. If the situation in Russia and Ukraine is contained soon, the gold price may be corrected.”
But a public fund person who declined to be named also told the reporter of the daily economic news, “Historically, the brewing stage of geopolitical conflict is the main rising wave of gold. After the outbreak of the essence of the conflict, the gold price has callback pressure, unless there is a possibility of further escalation of the conflict between Russia and Ukraine. However, at present, the United States does not intervene, and the probability of escalation is relatively small. Therefore, I think the short-term gold price is unlikely to break the $2000 / ounce mark.”
Palladium hit a six-month high
At the same time, the further escalation of tensions between Russia and Ukraine is also expected to have an impact on the platinum group metal market. On the 24th Beijing time, US dollar denominated palladium once rose to US $2564.42/oz, a new high since August 2021.
In this regard, Li ShuaiHua pointed out to every reporter that “the rise of palladium and other metals is due to the large output of Russia. The market is worried that Russia is sanctioned or Russia’s Palladium export is limited, which is equivalent to the contraction of supply on the one hand and the continued expansion of market demand on the other.”
According to Reuters data, Russia produced 2.6 million troy ounces of palladium last year, accounting for 40% of the world’s palladium gold production, and 641000 ounces of platinum, accounting for about 10% of the world’s total platinum mineral production.
Accordingly, JPMorgan Chase expects palladium to continue to rise sharply in the coming months, and the average price in the second quarter is expected to be $2650 / ounce; Platinum prices are expected to rise to $1150 / oz in the second quarter.
However, Li ShuaiHua stressed to reporters, “in terms of safe haven assets, it is mainly gold, and palladium is more industrial.”
Citigroup analyst aakash Doshi said that in the short term, the funds flowing into the gold market are obviously supported by the situation in Ukraine, increased stock market volatility and Inflation Hedging demand. In addition, the risk of monetary policy mistakes (caused by inflation) and economic recession is also increasing, which provides further support for the price of gold. He also believes that the price of gold may rise to $1950 / ounce in the next three months.
In addition, the Federal Reserve may continue to raise interest rates in 2022. Judging from the Fed’s statement, the interest rate hike is expected to be carried out in March and will be implemented seven times in the year. This may push the dollar stronger.
Overall, the precious metals led by gold have short-term upward momentum due to risk aversion factors, but in the long run, it is estimated that they will still decline with the upward trend of the US dollar.
