By Swann Collins, investor, writer and consultant in international affairs. Eurasia Business News – March 4, 2022

Gold prices hit $ 1,972.50 per troy ounce today, gaining 9.10 % over the past 30 days, as war in Ukraine and Western sanctions disrupt supply chains and financial markets.

Stock markets are down

On March 4 the European stock market fell. The French stock market index CAC 40 fell 4.97% on the Paris market, to 6,061.66 points, closing its worst week since the announcement of the first Covid-19 lockdown on March 16, 2020. The Frankfurt Stock Exchange’s DAX dropped 4.41% and Milan 6.24%, its worst day since March 2020. Over the week they lose more than 10% each.

London, more resilient since the beginning of the year, dropped 3.48%. In Zurich, the SMI fell 3.22%

The New York Stock Exchange fell more moderately, as the US economy was less exposed to Russia and shows resilience : the Dow Jones lost 0.83%, the Nasdaq fell 1.54% and the S&P 500 1.11%, around 17:10 GMT.

Investors and industry professionnals are worried by the rising commodities prices, as Western sanctions against Russian banks and oligarchs jeopardized the supply chains of gas, oil, aluminium, titanium and rare metals like lithium and palladium. Gold prices have registered strong gains over the past two weeks (see below).

The European companies most exposed to Russia are necessarily the most penalized. In Paris, Societe Generale fell by 10.03% and Alstom by 9.04%.

In Frankfurt, Uniper, which participated in the construction of the Nord Stream 2 gas pipeline, sold 11.85%. Banks, including Commerzbank (-10.27%), automotive, like Volkswagen (-6.99%) also suffered.

In Milan, the falls of the operator Telecom Italia (-15.56%), the bank Unicredit (-14.59) or Intesa San Paolo (-7.30%) also weighed on the rating.

Austria’s Raiffeisen Bank International, Hungary’s OTP Bank, France’s Societe Generale  and Italy’s UniCredit S.p.A. have subsidiaries in Ukraine,  Russia or both and face risk to their loan quality and capital. 

Oil prices skyrocket

Oil prices are jumping again even if they are moving a notch lower than their peak on Thursday. The barrel of US light crude (April futures) climbs 5% to $ 113 on the Nymex while the barrel of Brent from the North Sea (May futures) gains 4% to $ 114 after flirting with $ 120 yesterday.

As the geopolitical tensions have been growing in Europe, already hit by high inflation and political tensions, gold prices have rallied buyers.

On February 10, gold prices hit $ 1,827 per troy ounce today, gaining 1.05% in one day, while silver prices reached  $ 23.19 per ounce, gaining 2.98%.

On February 22, gold prices reached $ 1,913 per troy ounce and stabilized at $ 1,899 at closure time. Silver perices hit $24.14 per ounce, gaining 0.89%.

On February 24, gold fix prices at London were $ 1,936.30 per troy ounce.

High inflation to last

The rate of annual inflation of the Eurozone hit 5.8% in January, after 5% in December, 4.9% in November, 4.1% in October, 3.4% in September and 3.0% in August, according to a flash estimate issued on March 2 by Eurostat, the statistical office of the European Union.

Never has the statistical office of the European Union recorded such a figure since the start of its estimates, in January 1997, for the 19 countries that have adopted the single currency. In December, inflation in the euro zone had already broken a record, at 5.1%.

Lithuania (13.9%), Estonia (12.4%), Belgium (9.6%) and Latvia (8.9%) felt the highest rates of annual inflation in January 2022, exceeding the European average. Prices also rose in Germany (5.5%), in France (4.1%), Spain (7.5%) and Italy (6.2%), according to harmonized European data calculated by Eurostat.

These figures mean that the euro currency is losing purchasing power and that consumers would buy less goods and services in coming weeks. The risk of high inflation is the slowdown of the economic activity, as people can’t afford anymore some goods and services. Lasting high inflation in the Eurozone puts pressure on the quantitative easing and assets purchase programs of the European central Bank, based in Frankfurt, in a country with an aversion for inflation.

Across the Atlantic, the U.S. inflation again reached a record, hitting 7.5% in January 2022 on annual terms. This is the highest level of inflation never seen in the United States since February 1982 and the dynamic has been here for months. U.S. annual inflation hit 7% in December 2021, 6.8% in November and 6.2% in October.

For the United States, the Consumer Price Index for February 2022 is scheduled to be released on Thursday, March 10, 2022 at 8:30 a.m. (ET).

All this inflation climate is the leading economies of the world are driving gold prices up.

Gold run in Russia

The yellow precious metal has served people as a means of payment and store of value for thousands of years. In case of a deep foreign exchange liquidity shock that the Russian banking system is now experiencing after Western sanctions released last week, gold can once again serve investors and households all well. In a situation where hard currency runs out, if there is no alternative, real estate and simply durable goods become a store of value. Consumer prices in supermarkets are already skyrocketing in Russia (+9%) and the European Union (+5.8%). In Russia, not only ordinary consumers are worried but also wealthy people whose assets are now frozen on the Moscow Stock Exchange, and who entered the crisis with a good supply of cash. Their euros and dollars need now to be stored somewhere. This drive of Russian consumers and investors to gold will be another boost to the prices of the yellow metal in the coming weeks.

Russian gold mining company Polymetal confirmed that so far there are no problems with the procurement of material and technical resources, but with a high degree of probability there will be problems with the supply of equipment from Europe.

Gold miners traditionally sell gold to commercial banks, and they can export it or resell it within the country. In 2021, the bulk of Russian gold production went to export : 302 tons of gold for $ 17.4 billion.

Read also : How to invest in gold

The yellow metal has always been a great hedge against inflation because it rises in price when the cost of living standards rises. Gold can store value efficiently, when paper currency loses purchasing power because of inflation.

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