Gold’s historic use as a source of currency has come back into focus with news of Russia trying to use its huge gold reserves to evade the sanctions imposed on them.
This has been met with the US and the UK trying to close that loophole by tightening the scope of the existing measures to include the sale of gold by Russia-backed entities.
This latest update to the sanctions helped push gold back above $1,950 an ounce with the finite supply of the precious metal available to trade effectively reduced. Russia’s inability to use its gold reserves will hurt the country as it has invested heavily in bolstering its hoardings to reduce its reliance on the US Dollar so that it now has the fifth largest gold reserve in the world.
Russia has long viewed the US Dollar’s hegemony as the global trading currency of choice and saw gold as an ideal alternative asset as it carries no counterparty risk. However, every seller needs a buyer and the US’s actions will markedly reduce Russia’s potential pool of buyers.
While gold found renewed support on the back of these sanctions, its scope for further gains is likely to be capped by the pace that central banks are likely to raise interest rates this year.
So with the war in Ukraine providing firm support for gold, with an ever-present risk of escalation ensuring investors keep hold of the ultimate haven asset, and the spectre of raising interest rates a ceiling, gold looks set to trade in the $1,900-$2,000 an ounce for the foreseeable future.
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Rupert is a Market Analyst for Kinesis Money, responsible for updating the community with insights and analysis on the gold and silver markets. He brings with him a breadth of experience in writing about energy and commodities having worked as an oil markets reporter and then precious metals reporter during the seven years he worked at Bloomberg News.
As well as market analysis, Rupert writes longer-form thought leadership pieces on topics ranging from carbon markets, the growth of renewable energy and the challenges of avoiding greenwash while investing sustainably.
