Gold prices jumped on safe-haven appeal after Russian invasion of Ukraine

02 Mar 2022

Prices of gold surged to the highest level in more than a year in the hours after the Russian invasion of Ukraine on February 24, benefiting from its appeal as a safe haven to investors.

Bullion prices rose in February due to a combination of inflation linked to rising oil markets; falling stock markets, and the biggest attack on a European state since World War Two.

As the Russian invasion of Ukraine pressed on into its seventh day, gold remained well-supported above US $1,900 per ounce and was down 0.7 percent to US $1,929.12 per ounce in late trading on March 2. The yellow metal had reached a peak of US $1,973.96, its highest since September 2020, having jumped as much as 3 percent soon after the attack.

Some analysts believe gold prices can go higher in the coming weeks depending on how events unfold in Ukraine, although a possible rise in US interest rates could weigh on bullion.

Higher US rates can reduce the appeal of gold to investors, as the yellow metal bears no yield.

For UK jewellers looking to source costlier gold, a further challenge has been softness in the pound against the U.S. dollar in which gold is denominated, making gold more expensive in sterling terms. Since the invasion, many investors have piled into U.S. dollars, seen as a safe-haven currency.

“The surge in the gold price and inflation may lead some jewellers, who are not hedged, to be forced to pass on rising prices to their customers, as they see margins fall,” said Dinesh Parekh, CEO of Birmingham-based jewellery and diamonds supplier Just Diamonds.

“Another risk for some jewellers is that if they source more supplies now, they may face losses if the gold price falls sharply back later. The weakness in the pound is also hitting hard.”

Palladium surge

Palladium has also rallied amid concerns over supply shortfalls from supplier Russia due to the invasion.

The sharp increase in prices of palladium to more than a third above gold prices, may erode palladium’s application as a jewellery metal, notably in men’s wedding rings.

“The palladium price is seeing something of a huge boost as economic sanctions against Russia (the world’s largest producer of the metal) begin to take effect,” wrote Lawrie Williams, precious metals commentator with bullion dealer Sharps Pixley.

“If Russian palladium is removed from the market it will likely swing back into a severe palladium supply deficit situation again and we are already seeing initial signs of this with some very sharp price increases for the metal since Russia’s Ukraine invasion commenced.” 

Palladium, used by car makers in catalytic converters, rose 2.7 percent to US $2,649.03 on March 2, having hit its highest level since July at $2,722.79 on March 1.

Share your views with British Jewellery and Giftware International

British Jewellery and Giftware International (BJGI) support businesses in the Allied Trades with import and export procedures. As Russia is a leading player in commodities markets including precious metals BJGI highlight that the sanctions on Russia could likely flare up commodity prices, according to recent research, Aluminium prices jumped more than 3% to hit a record high of $3,450 per ton, Nickel is reported to be trading at the highest level in more than a decade: around $25,000 per ton. Platinum jumped more than 2%, while palladium surged more than 6%.

Russia is a key producer of all four metals. The country supplies 35% of the world’s palladium and 10% of world platinum, according to data reported by The London Metal Exchange.

A conflict escalation could potentially see base metal prices climb higher, short term, how is this affecting the UK Jewellery industry? We wish to understand how your business has been impacted by the recent invasion of Ukraine by Russia, have you been affected by supply issues? Has a surge in metal prices affected the end consumer?

The team at BJGI are would lik to encourage comments and feedback, that they can then share with UK Government as soon as possible.

Please send feedback to international@batf.uk.com For the Attention of Taran Sahota. 

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Source: David Brough (Jewellery Outlook)