Gold price to hit $2,150 on Russian invasion, 'very high inflation path', says Goldman Sachs

As the West steps up sanctions against Russia in the aftermath of a full-scale invasion of Ukraine, Goldman Sachs raised its commodities price forecasts, citing supply disruptions and an even more problematic inflation outlook.

"The range of near-term price outcomes for commodities has become extreme, given the concern of further military escalation, energy sanctions or potential for a cease-fire. "We expect the price of consumed commodities that Russia is a key producer of to rally from here."

Gold is another safe-haven commodity that is due for a much bigger rally going forward, according to Goldman.

"The recent escalation with Russia creates clear stagflationary risks to the broader economy, driven by higher energy prices, which reinforce our conviction in higher gold prices in coming months and our $2,150/toz (troy ounce) price target," Goldman said.

In reaction to additional sanctions against Russia, gold surged above $2,007.50 an ounce on Monday. Some gains were lost as the trading session progressed, with April Comex gold last at $1,995.70. But the precious metal is still set for the best monthly performance since May.

Goldman explained that gold would play a central role in this conflict as Russia turns to the precious metal for leverage amid sanctions. Russia's gold reserves total 2,298.53 tonnes, according to World Gold Council.

"Gold's unique role as the currency of last resort will likely be apparent if restrictions on Russia's central bank accessing its offshore reserves leave it leveraging its large domestic gold stockpiles to continue foreign trade, most likely with China," the bank said.

From the macro perspective, Goldman raised its inflation outlook, stating that it is "increasingly concerned" about the pace of inflation in 2022. "A very high inflation path in 2022 should make an easy case for steady rate hikes at all seven remaining" Federal Reserve meetings in 2022, said Goldman economist David Mericle said in another note to clients.

The first-rate hike will likely come on March 16, with the CME Fed Watch Tool projecting a 92.5% chance of a 25-basis-point hike.

Gold prices in Indian retail markets

India imports most of its gold requirements and hence with the depreciation of the domestic unit as it is gold turns costlier. Further, gold rates internationally influence rates in Indian markets, likewise, gold prices.

India imported 1,050 tonnes of gold in 2021, the most in a decade, and far more than 430 tonnes imported in 2020.

On March 07 2022, Indian gold prices are up by around Rs. 1000/10 grams. The 22-carat gold prices are quoted at Rs. 49,400/10 grams and the 24-carat gold rates are quoted at Rs. 53,890/10 grams.

Gold has always been considered as a hedge against inflation. This time it has proven its strength as a safe haven. The geopolitical uncertainties have worried the investors and they have realized that holding positions in commodities can help them in the future. On the other hand, the US Dollar index too jumped significantly after the war started.

In January, many investors anticipated that gold rates can drop in March. However, due to the rising inflation rate and Russia-Ukraine tensions gold rates are gaining. Gold is playing as a safe haven during the economic and political uncertainties.

Additionally, the global commodity markets are reacting positively due to the rising inflation rate in the USA. This week on Thursday, the CPI inflation data will be released in the USA.