Metals Stocks: Gold ends near a 1-week high as Russia-Ukraine war sparks ‘flight to quality’

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Gold futures edged higher Wednesday, finding their footing as traders kept an eye on an increasingly hawkish Federal Reserve and monitored developments in the Russia-Ukraine war.

“The war in Ukraine provides flight to quality support to the precious metals, but a hawkish turn in Fed commentary has been negative,” analysts at Zaner wrote in Wednesday daily commentary.

Fed Chairman Jerome Powell indicated Monday that the next rate hike could be 0.5% versus the 0.25% previously announced. On Tuesday, the St. Louis Fed President James Bullard has said the central bank needs to move aggressively on rate increases, while San Francisco Fed President Mary Daly said the Fed needs to steadily raise interest rates up to a neutral level.

Meanwhile, Cleveland Fed President Loretta Mester said Tuesday that the Fed should raise its benchmark policy rate to about 2.5% this year.

“The statements have sparked a sharp increase in Treasury bond and note yields, which makes it less attractive to hold non-interest-bearing instruments” like precious metals, said analysts at Zaner.

Gold for April delivery
GC00,
+0.77%

GCJ22,
+0.77%

rose $11.20, or 0.6%, to $1,932.90 an ounce on Comex. Most-active contract prices are poised for their highest settlement since March 17, FactSet data show. May silver
SIK22,
+1.11%

was up 32.1 cents, or 1.3%, at $25.225an ounce.

Gold slipped Tuesday as Treasury yields pushed to another round of nearly three-year highs. Higher yields can raise the opportunity cost of holding nonyielding assets like precious metals. On Wednesday, however, Treasury yields eased back a bit.

Meanwhile, investors were also watching the four week war in Ukraine where Russia is increasingly bogged down in a costly and uncertain military campaign, with untold numbers of dead, encircled by western sanctions that are biting hard on its economy and currency. U.S. President Joe Biden was slated to hold summit meetings in Brussels on Thursday with NATO allies, Group of Seven leaders and the European Union that’s likely to produce further sanctions on Moscow.

Ukraine has remained steadfast, Russia has stepped up its bombing campaign, and the U.S. warned of possible cyberattacks, said analysts at Zaner. “The situation there is fluid enough that another wave of flight to quality buying in possible.”

Gold has managed to rebound from the lower limit of its short-term trading range around $1,915 an ounce and is trading near the previous “reaction area” of $1,930, said Walid Koudmani, chief market analyst at XTB, in a note.

“ While the geopolitical situation remains uncertain, any major events could once again spark a renewed interest for the safe haven asset which has benefited greatly from investor panic by nearing its all time high just a few weeks ago,” he wrote. “On the other hand, even if we were to see a pullback, it will be essential to see if the aforementioned support level will manage to hold once again or if the price will extend the downward move this time.”

In other Comex dealings, May copper
HGK22,
+1.68%

added 1.2% to $4.758 a pound. April platinum
PLJ22,
-0.47%

tacked on 0.5% to $1,029.80 an ounce and June palladium
PAM22,
+1.82%

traded at $2,536 an ounce, up 2.4%.

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