Gold extended gains on Thursday as risk sentiment continues to pile up over the military crisis in Ukraine, with the US and its allies entering discussions on possible further energy sanctions against Russia.
Spot gold rose 0.9% to $1,963.48 per ounce by 12:15 p.m. ET, near its highest in two weeks. US gold futures jumped 1.3% to $1,963.50 per ounce in New York.
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In response to Russia’s continued invasion of Ukraine, the US is currently working with NATO allies on more measures to prepare for the possibility of Russia deploying biological, chemical or nuclear weapons as part of the war.
Earlier, National Security Advisor Jake Sullivan said that the US and the European Union are also “close to a deal” aimed at slashing Europe’s dependence on Russian energy.
The war in Ukraine and ensuing sanctions have pushed up commodity prices and fueled inflation, resulting in faster monetary tightening from some central banks while also threatening growth.
The risk of stagflation has driven up demand for gold as a safety hedge, in spite of the US Federal Reserve’s more hawkish tone and higher bond yields that are weighing on the non-yielding bullion.
Analysts believe additional rate hikes will not be enough to offset the positive forces, as they would still lag behind inflation.
“The very strong underlying inflationary pressures continue to be the main supportive fundamental factor driving the gold price. There are other ancillary factors, most notably, the war in Ukraine,” David Meger, director of metals trading at High Ridge Futures, said in a Reuters report.
Elevated inflation prints “and geopolitical uncertainty should drive gold modestly higher,” analysts at Morgan Stanley wrote in a Bloomberg note, forecasting $2,000 an ounce in the second quarter.
“We expect gold to come under pressure later in the year as central banks raise rates to combat inflation,” they said.
(With files from Bloomberg and Reuters)