Gold and Silver Gain Amid War in Europe

APMEX

3/4/2022 10:59:28 AM

Geopolitical concerns continued to dominate investor sentiment and subsequent market movements as another week began, and February drew to a close. Stocks in the U.S. were mixed on Monday, while negotiations between Ukrainian and Russian officials failed to bring about a cease fire or compromise. 

Meanwhile, precious metals were little changed on Monday, with gold near $1,907 and silver near $24.42 an ounce. While the conflict in Ukraine escalated, sanctions imposed by Western powers on Russia contributed to volatility. The European Union moved to ban Russian banks from the global SWIFT payment system but failed to include those involved in energy exports. 

Following the sanctions, the ruble fell to record lows against the dollar. Subsequently, the Russian central bank increased interest rates from 9.5% to 20%. Sanctions did little to deter Russian military aggression as the conflict escalated, further fueling a risk-off sentiment among investors and a flight to safe-haven assets. As Monday ended, gold closed the month 5.7% higher while silver solidified an 8.02% February gain. 

U.S. equities dove on Tuesday, marking a tough start to March. While the Nasdaq wrapped up its worst February since 2009, the Dow Jones and S&P 500 both fell over 1.5%. At the same time, WTI crude oil jumped to its highest price since 2014. Bullion was the beneficiary of a renewed demand for safe-havens, with gold prices surging by 1.7% to $1,939, and silver jumping by 4.5% on Tuesday. 

Fed Chair Jerome Powell gave the semiannual monetary policy update before Congress on Wednesday. During his testimony, Powell stated that interest rate hikes are likely to begin with a 25-basis point increase in March. Powell acknowledged the uncertainty that comes with a major conflict in Europe. The Fed Chair also confirmed that the central bank is working on plans to reduce its balance sheet. 

Powell’s testimony seemed to have a calming effect on U.S. markets, as stocks rallied, effectively erasing Tuesday’s losses. Bond yields even surged on Wednesday, with the 10-year Treasury note rising just above 1.8%. 

 

The Fed update added some level of certainty and all but ended talks of a 50-basis point rate hike for March. However, inflationary concerns, global growth woes, and the Ukrainian conflict all plagued markets on Thursday, causing another dip in stocks.

The lack of an agreement following the second round of negotiations between Ukrainian and Russian diplomats also dented investor sentiment. This contributed to the equities dip and drop in other riskier assets such as cryptocurrencies. Bitcoin dropped by over 4% Thursday, to around $41,100. Meanwhile, investors in the U.S. looked on to Friday’s Nonfarm payroll and unemployment data. 

U.S. Nonfarm payrolls rose by 678,000, versus the forecast of 440,000. Despite the pleasant surprise in payroll data, headlines were dominated by news that the Russian military had taken over one of Europe’s largest nuclear power plants in Ukraine. The attack caused a fire, sparking concerns of widespread nuclear contamination in Europe. So far, reports have indicated that no radiation was released. 

The U.S. Dollar Index surged again Friday morning, reaching its highest against the euro since 2020. A positive payroll surprise and dollar uptick would normally weigh on metal, but gold and silver remain buoyed by uncertainty in Europe. 

As this is written, gold is at one-week highs near $1,953, while silver is hovering around the $25.45 level. If these levels are maintained, it would be a 2.4% weekly gain for gold and a 4.2% increase for silver.