Fragile Optimism Over Peaceful Solution in Ukraine Likely to Cap Gold’s Scope for Gains

Hopes of a peaceful solution being found in the war between Ukraine and Russia have lent an optimistic tilt to the start of a new trading week.

This fragile optimism has seen equities rise but gold also has gained a touch after Ukraine’s refusal to accept Russia’s demand that it concedes the city of Mariupol as part of any peace pact illustrated that finding a solution that both sides can agree on won’t be easy.

Gold now looks to have seen its bullish surge fade for the time being as the precious metal now finds itself come under downward pressure on two fronts.

The talks between Russia and Ukraine, with differing agents brokering them, has built optimism that the war can be ended in weeks rather than months, receding the fear trade and rush to haven assets that pushed gold well above $2,000 an ounce earlier in the month.

Secondly, the hiking of interest rates by both the US Federal Reserve and the Bank of England last week confirmed the hawkish trajectory central banks across the world are now adopting to tackle rising inflation.

In a time of rising interest rates gold typically becomes less attractive due to its lack of yield.

The latest indication of the inflation pressures governments are having to try and bring under control will come on Wednesday with the UK publishing its latest figure.

The conflict in Ukraine has added further fuel to the inflationary fires, pushing up the cost of commodities and energy, with the UK expected to see February’s inflation topping 6%.

In the current macroeconomic environment, it will be difficult to see gold make huge gains however such is the fragile state of markets currently that any sign of Russia escalating its attack on Ukraine or broadening the scope of its ambitions would quickly see investors rush back to the time-honoured haven asset.

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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.