Gold futures on Monday traded modestly higher, as brewing international tensions and a downturn in risk assets supported buying in the precious metal that is perceived as a haven.
“Geopolitics is on the front burner of the marketplace at present, which is causing some anxiety among traders and investors,” said Jim Wyckoff, senior analyst at Kitco.com, in a daily note.
“Russia appears poised to invade Ukraine, despite the West’s efforts to dissuade Russian President Vladimir Putin by threatening sanctions,” he said.
The U.S. State Department over the weekend ordered the families of U.S. personnel to leave Ukraine, as concerns grow about an imminent Russian invasion, with the U.S. threatening sanctions if Moscow invades its neighbor.
On top of that, the United Arab Emirates said it intercepted two ballistic missiles targeting its capital, Abu Dhabi, with Houthi rebels blamed for brewing conflict in the region.
No major damage occurred as the drones were intercepted,” said Wyckoff, but “this was the second such drone attack by the terrorists.” Houthi rebels claimed responsibility for a drone attack in the UAE a week ago.
Meanwhile, silver for March delivery SIH22, -2.45% was trading 69.5 cents, or 2.9%, lower at $23.625 an ounce, after gold’s sister metal put in a weekly advance of 6.1% to end trade on Friday.
The move for gold comes as the Federal Reserve was slated to kick off an important gathering on Tuesday and Wednesday to lay out the framework for tightening monetary policy to combat rising inflation pressures.
Expectations are that the Fed this week will set the stage for raising interest rates, which currently stand at a range between 0% and 0.25%, as many as three times in 2022 to rein in inflation.
Lofty valuations in stocks and uncertainty about the effectiveness of central bank tactics to combat inflation also have been dragging substantially lower appetite for risk.
Gold prices rose “as risk aversion continues to grow amongst investors,” wrote Ricardo Evangelista, senior analyst at ActivTrades, in a daily research note.
Evangelista, however, said that the Fed meeting contains further downside risk for gold buyers, which could at least cap any significant moves higher, despite the bullish backdrop for precious commodities.
With inflation remaining a worry, “investors are awaiting this week’s Federal Reserve meeting with some concern, fearing a further hawkish tilt by the U.S. central bank, which, if confirmed, would be likely to create more downside for risk related assets,” he wrote.
“This conjecture looks supportive for gold, but it is also supportive of the US dollar and the inverted correlation between the two assets could cap the scope for greater gold gains as risk aversion gains traction on the markets,” the analyst said.
Gold prices briefly added to earlier gains before paring back that rise in the minutes immediately following U.S. data Monday from IHS Markit showing an index of service-oriented companies tumbled to an 18-month low of 50.9 from 57.6 in the final month of 2021.
Among other metals traded on Comex, March copper HGH22, -2.33% lost 2.3% to $4.421 a pound. April platinum PLJ22, -2.23% fell 2.1% to $1,013.30 an ounce, but March palladium PAH22, +1.13% traded at $2,124.50 an ounce, up 1%.