After the United States government announced that they may ban Russian oil exports in retaliation for President Vladimir Putin’s invasion of Ukraine, gold prices went up all around the world.
Just a few days ago, the price of an ounce of gold surged to over $2,000. This increase in price isn’t just a result of the U.S government threatening to ban oil exports to Russia. It’s a result of multifactorial reasons and situations that have arisen due to the Russia-Ukraine conflict.
How the War Has Caused an Increase In Gold’s Price
When the economy of two countries is threatened due to war, citizens start investing their money in mediums that they believe are safer than their country’s currency. Inflation is high during times of war and there’s no guarantee of stability.
Gold has always been regarded as the safest medium for investment during times of uncertainty. That’s why the people of Russia and Ukraine have started putting their money in gold instead of holding it in their country’s national currency. This has created an increase in the demand for gold. But while the demand has increased, the supply remains the same, resulting in a boost in the price of gold.
According to analysts, things are expected to not get better for Russia or Ukraine anytime soon. That’s why it’s predicted that the price of gold will keep on rising in the upcoming months. This bull rise will only end once the conflict has been resolved.
Due to all the reasons we have discussed so far in this post, investors in both exchange-traded funds (EFTs) and futures are increasing their bullish bets on gold. New investments in gold ETFs were at an all-time high this year just a few weeks ago. Furthermore, the net-long position of hedge funds trading the Comex is also the highest since August 2020.
Just a few days ago, spot gold rose 0.7% to $1,984.57 an ounce. This happened after it had already climbed the highest since August 2020. What’s more, the Bloomberg Dollar Spot Index rose 0.5%. Silver, platinum advanced, and palladium also increased by over 14% to an all-time record.
According to Carsten Menke, head of next-generation research, at Julius Baer Group Ltd, “Any escalation of the war could push the world economy toward a stagflation scenario, which we see as very bullish for gold. Investors who see the potential for worsening could seek some protection in gold, but need to be aware that prices will likely retreat if their assumption does not hold true.”
What this Means for Gold Mining Operations
This recent boost in price means that gold mining operations around the globe will be making even more profits than they were already. That’s because this increase in gold’s price comes without any downsides whatsoever for the gold mining operations. Put another way, while the price of gold goes up around the world, the cost and effort of mining remain the same.