Gold Climbs as Russia Sanctions Fuel Fears Over Global Economy

(Bloomberg) --

Gold advanced as sweeping sanctions on Russia for its invasion of Ukraine heightened fears of a hit to global economic growth.

Bullion surged as much as 2.2% after penalties were placed on the Bank of Russia to prevent it from using foreign reserves to blunt sanctions. They also excluded some Russian lenders from the SWIFT messaging system that underpins trillions of dollars worth of transactions.

Russian President Vladimir Putin retaliated with his own countermeasures, while Russia's central bank raised its key interest rate to the highest in almost two decades and canceled trading altogether in stocks and bonds as the price of Russian-linked shares and debt tumbled overseas.

Concerns are growing about whether the financial chaos may damage global economic growth or require action by the U.S. Federal Reserve to supply dollars.

“Escalation of Russia-Ukraine conflict generates high demand for gold,” Daniel Briesemann, an analyst at Commerzbank AG said in a note.

Bullion climbed the most since May this month, outperforming other havens. It will also be getting a boost from lower expectations of aggressive monetary tightening by the Fed to tame the highest inflation in decades.

Meanwhile, the Russian central bank said on Sunday it would resume its gold purchases on the domestic market after a two-year pause. It holds more than 2,000 tons in bullion already, making it the fifth-biggest sovereign owner.

“The purpose of buying gold (in the domestic market), is to monetize it when required,” Nicky Shiels, head of metals strategy at MKS PAMP SA, said in a note. “It's the fear over potential central bank sales that may overhang the market.”

Gold rose 1.1% to $1,910.10 an ounce at 4:19 p.m. in New York, after earlier rising as high as $1,930.85. Bullion for April delivery increased 0.7% to settle at $1,900.70 on the Comex. The Bloomberg Dollar Spot Index was up 0.1% after earlier gaining as much as 0.7%. Platinum slipped and silver gained.

Palladium surged 5.9% after spiking as much as 7.8% earlier in the session on concerns about disruptions in exports from Russia, which produces about 40% of freshly mined supply.