Gold surged to 18-week highs above 1350.00 on safe-haven demand as the situation in Ukraine escalated significantly over the weekend. Russian troops moved into Ukraine’s Crimean peninsula. Ukrainian Prime Minister Arseny Yatseniuk called it a “declaration of war” by Russia. U.S. Secretary of State John Kerry called it an “incredible act of aggression.”
The United States, EU, G7 and NATO all condemned the Russian incursion, warning Russian President Vladimir Putin that he needed to withdraw or there would be consequences. Putin, however, declared Russia had every right to defend Russian interests and nationals in Ukraine and secured permission from the Russian Parliament over the weekend to use military force.
Heightened geopolitical tensions drive interest in safe-haven assets. Gold, Treasuries, the yen and Swiss franc all rose today. While the dollar index rebounded, gains were rather modest, with only about half of Friday’s losses retraced.
As a result of the escalating crisis, prices of food and energy commodities also surged. Ukraine is a major exporter of corn and wheat. Russia is a major exporter of oil and natural gas to Europe. As tensions between Russia and the EU rise, there is risk that Russia might constrain supplies. Heightened price risks may be providing an additional boost to gold, given its stature as an inflation hedge.