Gold prices spiked on Tuesday, hitting a nine-month high, as Russia-Ukraine worries intensified. Russian President Vladimir Putin recognised two breakaway regions in eastern Ukraine as independent and ordered the Russian Army to start a “peacekeeping operation” into the area, thus triggering a crisis which traders fear could lead to a full-blown war.
This has boosted demand for precious metals such as gold and silver, prompting calls for reallocation of portfolios in favour of precious metals.
In the spot market, gold (highest purity) was sold at ₹50,089 per 10 grams, while silver was priced at ₹63,661 per kg on Monday, according to the Indian Bullion and Jewellers Association data.
Gold in global markets trades 0.43 percent higher at $1907.30 at 8.21 GMT on Tuesday, while silver trades at $24.18 per ounce, 1.1 percent higher.
Gold prices in India
|Date||Gold prices (Rs)|
(Note: Prices belong to 24 carat gold)
There are a number of factors such as negative market sentiment and spike in inflation that are also giving an impetus to the rise in commodity prices. Vijay Bhambwani, Head of research, Behavioural Technical Analysis of Equitymaster says, “The geo-political crisis in Ukraine is one of the few triggers that are likely to impact gold and silver prices in India and by extension, the world. Safe haven buying is likely to accelerate since people tend to resort to flight to safety. Also, supply disruptions are feared in energy and grains as Russia and Ukraine are big swing supplier of both.”
He adds, “Any war may cause a ‘force majeure’ clause on the supply side by Russia and Ukraine with an aim to demand higher price.”
The situation could get further exacerbated by growing inflation which is likely to lead to higher interest rates. “At the same time, wars are by their very nature inflationary. Higher inflation leads to higher bullion prices.,” says Bhambwani.
That means pressure on equity markets. Outflows from equity can lead to inflow into bullion.