(Kitco News) The gold market continues to benefit from its safe-haven appeal as Russia-Ukraine tensions confuse and add fear to the marketplace.
There was a lot of confusion over sarcastic comments made by Ukraine President Volodymyr Zelenskiy about February 16 being identified as the day Russia plans to attack Ukraine.
In a video message on Monday, Zelenskiy declared this upcoming Wednesday a “day of unity,” instead of what many in Western media cite as a possible start of a Russian invasion.
“They tell us Feb. 16 will be the day of the attack. We will make it a day of unity,” Zelenskiy said. “They are trying to frighten us by yet again naming a date for the start of military action,” Zelenskiy said. “On that day, we will hang our national flags, wear yellow and blue banners, and show the whole world our unity.”
The reference of February 16 added fear to the markets on Monday afternoon. To clarify the comment, Zelenskiy spokesman Sergii Nykyforov said that the comment was taken at face value.
“The president referred to a date that was spread by the media,” Nykyforov told NBC News.
In the Monday’s video message Ukraine’s leader also called on politicians and business leaders who had fled the country to return within 24 hours in a show of unity.
“It is your direct duty in such a situation to be with us, with the Ukrainian people. I suggest that you return to your homeland within 24 hours and stand shoulder to shoulder with the Ukrainian army, our diplomacy, and our people,” Zelenskiy said.
On Monday, the U.S. announced that it is closing its embassy in the country’s capital Kyiv and “temporarily relocating” its operations to Lviv, a city in western Ukraine near the Polish border.
In response, the U.S. stock indexes fell while gold prices tested the $1,870 an ounce level. The Dow Jones Industrial Average was down 0.62% during afternoon trading, the S&P 500 fell 0.6%, and the Nasdaq Composite edged down 0.1%.
April Comex gold futures were trading at $1,872.30, up $30.20 on the day, at the time of writing.
The Russia-Ukraine conflict is what will drive gold prices this week, with the market looking to make more gains in case of further escalation, according to analysts.
“The upswing is attributable to a warning from U.S. intelligence services that a Russian invasion of Ukraine is imminent. Consequently, gold was in considerable demand as a safe haven. This need for safety of investors was also evident in the ETFs: Bloomberg reports that Friday saw inflows of nearly 6 tons,” said Commerzbank analyst Daniel Briesemann. “If the situation there does indeed escalate, the gold price is initially likely to climb further.”
The geopolitical tensions could take the gold market all the way to $1,900, said OANDA senior market analyst Edward Moya. “The $1880 level should prove to be key resistance for gold … bullish momentum could take prices to the $1900 level,” Moya said.
Fears of a possible Russian invasion of Ukraine were renewed on Friday when the U.S. said that Russia could launch military action in Ukraine “any day.”
Russia has continuously denied reports that it is planning to attack Ukraine. Over the weekend, Kremlin spokesman Dmitry Peskov accused the West of “hysteria.”
“This hysteria is being intentionally whipped up,” Peskov said on Sunday. “We are being accused of some sort of unusual military activity on our territory by those who brought in their troops from across the ocean. This neither exactly logical nor exactly polite.”
Another layer of uncertainty was introduced by St. Louis Federal Reserve President James Bullard on Monday, who said in a hawkish comment that he would support a faster rate hike timeline that would see a full percentage point increase by July 1.
“It was really October, November, December, January that called into question any idea that this inflation was naturally going to moderate in any reasonable time frame without the Fed taking action,” said Bullard.
The big item on the agenda this week is the January FOMC meeting minutes. Markets will be looking for clues in terms of how aggressive the U.S. central bank could allow itself to be.
” The minutes … will help to clarify whether officials would consider a 50bp hike,” said Capital Economics chief North America economist Paul Ashworth.