By Barani Krishnan
Investing.com -- Gold had its biggest week in almost two years, inching toward the long-eyed $2,000 an ounce target as worsening Russian aggression in Ukraine raised geopolitical risks that boosted the yellow metal.
A sterling U.S. jobs report for February that extraordinarily found no gain in wages also aided gold. Analysts said the report might prod the Federal Reserve to go easier with the first pandemic-era rate hike due in the next two weeks.
Gold’s most-active contract on New York’s Comex, April, settled up $30.70, or 1.6% at $1,966.60 an ounce.
For the week, the benchmark gold futures rose 4.2% for its largest weekly advance since July 2020, when it was en route to record highs above $2,100 in August that year. Since achieving that pinnacle, gold has fallen to $1,600 levels and risen to as high as $1,976 last week without being able to test the $2,000 target.
But the Russian invasion of Ukraine and soaring inflation in the United States could, however, change the fortune of gold longs, analysts said.
“Gold has key technical resistance levels it has to break past, but the argument for the $2000 level does not seem so far fetched anymore,” said Ed Moya, at online trading platform OANDA.
“Demand for safe-havens was elevated after Russians seized Europe’s largest nuclear plant in Southeastern Ukraine. Russia’s military campaign continues to make gains and that is leading to fears they have an ambition to take control of all of Ukraine. With both European equities and the euro in free-fall, demand for safe-havens will not be easing anytime soon.”
Gold’s standing as an inflation hedge has also been greatly boosted by the growth in U.S. prices due to ultralow interest rates and trillions of dollars of pandemic-related spending.
The Fed slashed U.S. interest rates to nearly zero after the Covid-19 outbreak in March 2020 and kept them there to enable economic recovery.
After contracting 3.5% in 2020 from disruptions forced by the pandemic, the economy expanded by 5.7% in 2021, growing at its fastest pace since 1982.
But inflation grew even more. The Personal Consumption Expenditure Index, a U.S. inflation indicator closely followed by the Fed, rose by 5.8% in the year to December and 6.1% in the 12 months to January, Both readings also indicated the fastest growth since 1982. The Fed’s own tolerance for inflation is a mere 2% per year.
Inflows into exchange-traded funds on the back of the war in Europe and the economic fallout may also provide a pillar of support for bullion prices, Bloomberg reported on Thursday.
Holdings in gold-backed ETFs could increase by 600 tons this year if concerns over U.S. growth widen, potentially leading to a price spike to $2,350 an ounce, according to Goldman Sachs (NYSE:GS). Inflows into funds have totaled just above 100 tons so far, Bloomberg data showed.