- Gold futures rose Monday as investors worried about a Russian invasion of Ukraine sought safe havens.
- Worries about the impact of high US inflation on stocks burnished gold's appeal as a hedge, analysts said.
- Gold has traditionally been considered a safe haven against inflation and market volatility.
Gold futures rose Monday to hover near a three-month high, as concerns about an impending Russian attack on Ukraine drove investors toward safe havens.
Worries around sky-high inflation were also denting investor confidence, even as the Federal Reserve gets ready to hike interest rates.
Over the weekend, expectations grew that Russia will invade its neighbor after a US national security adviser, Jake Sullivan, said Friday that major military action could come very soon – even this week.
While Russia rebuffed that suggestion, investors took flight toward assets such as government bonds that are seen as less risky. The Swiss franc, another safe haven, moved up against the euro, while global stocks sold off.
US gold futures climbed 0.8% on Monday to $1,856.65, trading near highs last hit in November. The precious metal jumped Friday as the geopolitical tensions escalated.
"The upswing is attributable to a warning from US intelligence services that a Russian invasion of Ukraine is imminent. Consequently, gold was in considerable demand as a safe haven," Commerzbank analyst Daniel Briesemann said in a Monday note.
Some analysts said the geopolitical uncertainty will likely drive volatility in markets, and many predicted that gold futures will rise if the Russian-Ukraine situation worsens.
"How the Russia-Ukraine conflict develops is likely to dominate events on the gold market this week. If the situation there does indeed escalate, the gold price is initially likely to climb further," Briesemann said.
Meanwhile, uncertainty around whether the US Federal Reserve moved soon enough or hard enough to bring down red-hot inflation was also weighing on investors' appetite for risk.
US inflation is running far hotter than the Fed and markets expected. The US Consumer Price Index (CPI) jumped to 7.5% in January, the highest annual rate since 1982, official data showed last week.
That has put pressure on the Fed to raise interest rates to tame inflation, and Goldman Sachs now expects seven rate hikes from the central bank in 2022.
"Gold is starting to get its groove back, as some investors are seeking protection against an overly aggressive Fed tightening cycle that could threaten growth," said Edward Moya, senior market analyst at OANDA, in a note Friday.
Gold, which is traditionally seen as a hedge against inflation, has been able to shake off rising US bond yields, and any drops below $1,800 have been short-lived, according to Ole Hansen, head of commodity strategy at Saxo Bank.
"Support driven by gold's credentials as an inflation hedge as well as a defensive asset during a period of elevated stock and bond market volatility as the market adjusts to a rising interest rate environment," Hansen said in a note Friday.
But he said inflation will remain high, given that higher interest rates will not bring down rises in input costs, wages, and rentals.
"With this in mind, gold is increasingly being viewed as a hedge against the market's current optimistic view that central banks will be successful in bringing down inflation," Hansen said.