Gold Climbs More Than 1% As The West Slaps Fresh Sanctions On Russia

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Gold prices jumped more than 1% on Monday as Western countries imposed new sanctions on Russian for invading Ukraine. The bullion has already gained more than 6% so far in February and is on track for its highest monthly gain since May 2021. The U.S. gold futures also climbed 1.1% to $1,909 an ounce.

Spot gold is currently trading at $1,898.24 per ounce as of 0801 GMT.

On Saturday, the U.S. and its allies moved to block Russian banks’ access to the SWIFT international payment system. They also announced other measures to limit Moscow’s use of its $630 billion war chest. In response, the Russian central bank announced steps to manage the widening fallout of harsh Western sanctions. These include the resumption of gold buying on the domestic market.

Moreover, Canada and several European nations shut their airspace to Russian airlines. The United States is considering similar action but has yet to make a final decision.

In the face of a barrage of reprisals from the West, President Vladimir Putin put Russia’s nuclear deterrent on high alert yesterday. The U.S. said the nuclear alert was “totally unacceptable.” Washington also accused Putin of escalating the war with “dangerous rhetoric” despite the failure of his campaign in Ukraine to produce rapid victories.

OANDA senior market analyst Jeffrey Halley commented that Western sanctions on Russia led to a risk-aversion sell-off in markets. They also boosted the safe-haven demand for the bullion. Gold is often used to preserve wealth in times of political and financial uncertainty.

On the technical front, DailyFX senior strategist Christopher Vecchio suggested that gold price rallies might not last long. The bullion cannot maintain a meaningful rally in an environment defined by hawkish central banks and slowing growth among G7 countries. Also, the U.S. Federal Reserve will start interest rate hikes in March. Vecchio also said that the IG Client Sentiment Index indicates a strong gold-bearish contrarian bias.

FXStreet senior analyst Ross J. Burland agreed that the Fed remains the key driver for gold prices. The hawkish Fed will eventually dampen demand for the safe-haven metal. Gold prices cannot maintain an upward trend without sustained buying behavior because real rates will rise sharply amid U.S. rate hikes and quantitative easing.