Gold price pushes above US$1,900 as Ukraine crisis spurs haven demand

Bengaluru

GOLD was little changed over the Feb 19-20 weekend - near an 8-month high of US$1,902.20 per ounce as traders assessed heightened tensions over Ukraine ahead of an expected meeting this week between Russia and the US. Gold stocks rose in tandem.

The precious metal is set for a third straight weekly gain, its longest run this year, even as the US Federal Reserve is preparing to raise rates, which could dampen demand for non-interest bearing gold. "A rise in Russia risk premium" contributed to the increase in gold prices from the start of February, TD Securities commodity strategists led by Bart Melek said in a note.

Citigroup Inc analysts including Aakash Doshi upgraded their near-term price forecast to US$1,950 an ounce from US$1,825, citing the geopolitical tensions. Further out, the bank remains bearish, with a target of US$1,750 over 6 to 12 months as "higher real yields and stronger equities can weigh on bullion prices again."

Spot gold was 0.1 per cent lower at US$1,896.29 an ounce on Friday (Feb 18) at 4.02 pm in New York, after closing at the highest level since June 10, 2021 on Thursday. Bullion for April delivery slipped 0.1 per cent to settle at US$1,899.80 on the Comex. The Bloomberg Dollar Spot Index was up 0.2 per cent. Silver gained, while platinum and palladium fell.

Gold miners are poised to rise to become top performers this month thanks to a combination of geopolitical risk in Europe and inflationary risk in North America.

In Toronto, where the most large-cap gold and mining stocks are traded, the S&P/TSX Composite Gold Index is up over 15 per cent in February, outperforming Energy Index by 13 percentage points and the broader market by almost 15 percentage points each.

In the US, Newmont Corp and Royal Gold Inc have led the S&P 1500 Supercomposite Gold Index to a roughly 11 per cent return this month, compared with a 3 per cent gain for the S&P 1500 Supercomposite Energy Index.

"The short-term bid for gold driven by Black Sea military tensions, a spike in risky asset volatility, and inflation hedge demand will need to grapple with an increasingly hawkish Fed and higher policy rates come March," Aakash Doshi, Citi's head of commodities research in the Americas, wrote in a Feb 17 research note.

However, the longer-term outlook for the precious metal is more challenged as the US Federal Reserve and Bank of Canada move to raise interest rates. Doshi called gold a "pain trade" and noted his bearishness on gold for both the second half of this year and 2023, when he forecasts gold will fall to US$1.675/oz. BLOOMBERG