Gold Flirts with Yearly High as U.S.-Russia Tensions Escalate
The price of gold rose sharply Wednesday, as markets reacted to a series of threatening tweets from President Trump over Russia’s role in the Syrian conflict.
Haven Demand Boosts Gold
Gold futures strengthened to a high of $1,369.40 a troy ounce on Wednesday, which would have marked the best close of the year The futures contract consolidated at $1,356.80 for a gain of $10.90, or 0.8%.
While the yellow metal has only returned 3.6% since the year began, it has shown more stability, with prices failing to break below $1,300.00. Bullion also benefited from the dollar’s worst start to a year in over a decade. Since gold futures are priced in dollars, they are highly sensitive to the currency’s fluctuations. In general, a weaker greenback makes gold more attractive for holders of other currencies.
Silver prices also rallied on Wednesday, with the June futures contract adding 7 cents, or 0.5%, to $16.67 per troy ounce.
Gold’s premium over silver rose to 81.37 on Wednesday. This essentially means that one ounce of gold is worth 81.37 ounces of silver. The ratio skyrocketed to 82.00 at the start of April, which was the highest since mid-2016.
Bullion has made over-sized gains relative to silver for the better part of a year, with the gold/silver ratio climbing more than 18% over 12 months.
Syria: The Center of Chaos
Demand for gold increased after President Trump threatened Russia with war for its involvement in backstopping Syrian President Bashar al-Assad. An alleged chemical attack on the Syrian city of Douma over the weekend prompted the Trump administration to consider stronger military intervention. Based on Trump’s tweets, missile strikes have already been decided, although the size and duration of the assault remain unclear.
The Assad regime has been accused of using chemical weapons several times despite handing over its arsenal in 2014 as part of a brokered agreement with Russia.
Though Syria’s war has raged on for more than seven years, it has had a relatively small impact on the markets as pro-Assad forces appeared poised to win back control of the country’s major population centers. However, the specter of a bigger clash between Russia and the United States would exacerbate what is already a deteriorating relationship. For investors, this likely means more haven buying of gold and other tangible assets.
Interestingly, bitcoin and other cryptocurrencies have been described as having similar attributes to commodities. Being non-correlated with the broader market, bitcoin could become more attractive in a risk-off setting.
Featured image courtesy of Shutterstock.