Precious Metals Jump On Supply Fears And Flight To Safety Bets

Gold prices hit a fundamental level, while palladium prices jumped to a record high on Monday as intensifying Russia-Ukraine conflict and the response of Western countries has fueled tight supply of certain precious metals and has pushed investors towards safe-haven assets.

While rising domestic gold prices had put off buyers in top Asian hubs last week and Hong Kong's COVID-19 curbs further dampened appetite, investors were on the sidelines with a close eye on the Russia-Ukraine conflict.

Spot gold was up 1.5 per cent to $1,998.37 per ounce after scaling to its highest level since September 2020 of $2,000.69 earlier on Monday, while U.S. gold futures rose 1.7 per cent to $2,000.20.

Holding of the world's largest gold-backed exchange-traded fund, SPDR Gold Trust, rose 0.4 per cent to 1,054.3 tonnes on Friday - their highest since mid-March 2021.

"Gold trades higher supported by safe-haven buying amid increasing Russia-Ukraine tensions. Rising crude oil and commodity prices have also added to inflation concerns. Gold may continue to trade higher unless risk sentiment improves significantly," said Ravindra Rao, Head of Commodity Research at Kotak Securities.

In what is shaping up as a major stagflationary shock for world markets, oil prices soared above $130, their highest since 2008 on Monday, after the news a US and European ban on Russian oil imports is being considered and delays in Iranian talks fueled supply concerns.

And it is not just oil; commodity prices have their strongest start to any year since 1915, according to Bank of America. 

Among the many movers last week, nickel rose 19%, aluminium 15%, zinc 12%, and copper 8%, while wheat futures surged 60% and corn 15%.

"If the West cuts off most of Russia's energy exports, it would be a major shock to global markets," Ethan Harris, chief economist at Bank of America, told Reuters.

With Russia accounting for about 40 per cent of global palladium production - the auto-catalyst metal used by automakers in catalytic converters to curb emissions, supply concerns have pushed palladium prices.

Palladium jumped to a record high of $3,172.22 earlier in the session. It was last trading over 5.5 per cent at $3,172.19 per ounce.

Spot silver gained 1.7 per cent to $26.09 per ounce, while platinum jumped 2.3 per cent to $1,147.19.

"Gold and silver showed solid strength last week amid an intensifying war between Russia-Ukraine. Major risk aversion due to war supported safe-haven buying of precious metals. Despite strength in the dollar index, gold and silver gained last week," said Rahul Kalantri, Vice President Commodities at Mehta Equities.

"Any dip in the prices would be buying opportunity in precious metals," he added.