Gold Prices Surge Following Geopolitical Uncertainties, Global Inflation

Employees process ingots of 99.99 percent pure gold at the Krastsvetmet non-ferrous metals plant, one of the world's largest producers in the precious metals industry, in the Siberian city of Krasnoyarsk, Russia, on Nov. 22, 2018. Reuters

Gold prices registered their highest levels since March 11 as uncertainties regarding the ongoing war in Ukraine increased demand for safe-haven bids while global economies face high rates of inflation and zero-tolerance COVID lockdowns have caused chaos in China, dampening its growth.

The metal has gone up over 2.71 percent since the start of the month when it was trading at $1938.04. Gold is currently at $1990.75, as of this morning. On April 11, it was hovering at 1942.61, and over the past week, has gained more than 2.17 percent.

The Russian invasion of neighboring Ukraine continues as authorities in the embattled country reported missiles striking western city of Lviv on Monday while Russian forces now claim control in the strategic city of Mariupol. Ukrainian forces have refused calls to surrender and the fighting continues unabated.

“The situation in Mariupol is both dire militarily and heartbreaking,“ Ukrainian Foreign Minister Dmytro Kuleba said during an interview with CBS’ “Face the Nation.” ”The city doesn’t exist anymore. The remainder of the Ukrainian army and large group of civilians are basically encircled by the Russian forces.”

Peace talks have been unsuccessful so far with Russian President Vladimir Putin calling them a “dead end” while Kyiv blames Moscow for derailing the talks.

Inflation in the United States has reached a multi-decade high of 8.5 percent year-on-year after hitting 1.2 percent in March.

The global economic situation looks grim with worldwide debt accumulation and deficits growing at a greater pace during the pandemic than in the early days of the global financial crisis of 2007-2009 and the Great Depression according to the International Monetary Fund.

Investing in bullion is considered relatively safe during times of economic and political upheaval.

Due to the rising inflation, central banks around the world are raising interest rates to contain price hikes, which can end up tightening global financial conditions, while moving investments away from high risk stocks towards historically risk-averse assets like gold.

The Federal Reserve’s hawkish stance towards inflation and tightening monetary measures could bring about a recession in the United States, according to Wall Street banks like Goldman Sachs.

The resurgence of COVID-19 in China’s commercial hub, Shanghai, has resulted in entire sections of the city being fully locked down. Zero-tolerance COVID policies such as locking citizens in their homes have driven them to despair while food supplies run low. Meanwhile, delivery trucks lie stranded on freeways, unable to enter cities due to the lockdowns. The resulting drain on local economies is taking its toll on China’s GDP, with factory shutdowns and clogged ports affecting supply chains worldwide.

The U.S. dollar’s gains have proved a resistance to the expansion of gold prices along with the recent surge on yields of the benchmark 10-year U.S. Treasury note.