Russia-Ukraine war: Should you buy gold now?

The war in Ukraine continues to cause some wild price swings in commodity markets. And now all eyes are on Turkey as Russia and Ukraine open second round of talks on March 28. A late night agreement on this peace talks in Turkey and a limited lockdown in Shanghai have gone down well in the global markets. When it comes to India, as on March 28, gold price in India for 24 carat gold (10 grams) remained at Rs 52,590 while, 22 carat gold (10 grams) remained at Rs 48,200. The gold rate has increased by Rs 70 for 10 grams for 24 carat and 22 carat in last 24 hours. Minor fluctuation in gold prices was observed in different metro cities of India in last 24 hours. Gold price in Chennai for 24 carat (10 grams) is Rs 53,820 while the 22 carat (10 grams) is 49,335.

Looking at the global market, reflecting a renewed rally in oil prices and the related fears of inflation, demand from safe haven seekers has picked up and pushed gold prices back above $1,950 per ounce. In fact, both gold and oil have hit their war-time lows on the very same day, with prices briefly dipping below $100 per barrel and $1,900 per ounce, respectively. The increased co-movement between both commodities suggests that inflation fears are the dominant driver of the gold market at the moment, luring safe-haven seekers back in. Holdings of physically backed gold products, the preferred gauge of safe-haven demand have recorded sizeable inflows of around 165 tonne since the start of the war, providing strong support to prices. However, one has to keep in mind that the Western politicians are trying to freeze Russia's vast gold reserves, which the country could use to finance the war.

Mind you that both the US and the UK governments have come out in the open and said that the West needs to find ways to prevent Russia from monetising its vast gold reserves of 2,300 tonne, worth around $145 billion. As most of Russia's currency reserves are already blocked, the Western leaders have rightly thought of the possibility that the gold could eventually be used to finance the war. One also has to keep in mind that the West does not have any direct access to Russian gold reserves and thus secondary sanctions on parties involved in a potential sale with the Bank of Russia appear as the only solution.

Experts are of the view that the key question in times of geopolitical crises is always whether economic and financial market risks are on the rise or whether they are receding. From Indian trader's perspective, although the market has been volatile due to the Ukraine war, gold is attractive due to soaring inflation and uncertainty surrounding the Russian-Ukraine war. As long as the two factors continue to dominate market sentiment, chances of a further uptrend in gold prices remain intact. It is a good opportunity to go long on every dip. There is another school of thought that thinks that gold prices may fall if war clouds disappear and an aggressive stance by the Fed may soften gold prices.