For those who love prosperity, stability, and peace, these are not good times. The world economy has been completely upended for the past two years and, just as it seemed that we were returning to some semblance of normalcy, war has erupted as Russia invaded Ukraine.
The future being uncertain, millions of people are panicking right now. Refugees are fleeing Ukraine to Poland and other neighboring countries as the Russian army continues its assault on Ukraine’s cities. The rest of the world has done its best to freeze Russia out of the world economy, denying Russian ships fuel, sanctioning Russian oligarchs and seizing their assets, and refusing to buy Russian oil and gas.
But Russia is such a major source not only for oil and gas but also for other commodities and natural resources that shutting off Russia from world markets could result in serious price shocks, which we’re already starting to see. Oil prices already hit $130 recently, and they could go even higher. Just last week discussion of $150 oil was seen as a long-term possibility, but now that price level is well within striking distance.
These price shocks, and the potential for further price shocks, is causing a great deal of fear and uncertainty in world markets. Stock markets are plummeting while commodities are rising. As more investors look for safe havens, the gold price could very well continue to rise.
Russia and Gold
The initial rise in the gold price has been the result of investors fearing what might happen in Ukraine. Fighting is still ongoing, and may very well get worse. And with Russia’s vast nuclear arsenal, the use of nuclear arms is never completely off the table.
With so many hawks in the West looking to supply Ukraine with arms, fighter aircraft, or other military aid, there’s no guarantee that the conflict there won’t turn into World War III eventually. And that has many people afraid. As a result, they’re looking to the safety and security that gold provides.
What many people forget, however, is that Russia is the world’s second largest producer of gold, producing about 10% of annual world gold production. The London Bullion Market Association (LBMA) has just decided to cut off Russian refiners and depositories from the Good Delivery market, meaning that any newly produced and refined gold produced in Russia will no longer be able to be sold on world markets.
The Russian government may try to buy much of this gold, or Russia may try to get around this by siphoning gold to China. But in either case, there’s the potential for world gold supply to drop by 10% this year. With demand skyrocketing, that’s a recipe for a significantly higher gold price.
Russia and Other Metals
Gold isn’t the only precious metal affected by the war in Ukraine. Russia is also the world’s largest producer of palladium, accounting for about 40% of global production. Palladium, as everyone knows, is the primary metal used today in automotive catalytic converters. So cutting off that large a portion of world palladium production is bound to have an impact on the automotive industry.
Car prices have been among the highest-growing prices over the past two years, with new cars rising due to semiconductor shortages, and used car prices following. If firms decide not to purchase Russian palladium, or are forbidden from purchasing palladium due to sanctions, it could forestall any recovery in the automotive sector. Palladium prices have already been jumping as a result of fears of a supply shortage.
Russia is also the world’s second-largest producer of platinum, accounting for about 12% of world production. Platinum is also a significant metal used in catalytic converters.
In addition to precious metals, Russia produces significant amounts of base metals, including aluminum, steel, nickel, and titanium. Russia is the world’s third-largest producer of titanium, accounting for around 13% of production in recent years. Titanium is used heavily in aircraft production, with Airbus and Boeing relying on Russian titanium for about 50% and 33% of their titanium needs respectively. Ukraine is the world’s fifth-largest producer of titanium.
Nickel is an important metal used in the production of stainless steel, with Russia, the world’s third-largest producer, responsible for about 10% of world production. Russia is also a significant producer of aluminum and steel, producing about 5% of the world supply of each of those metals.
In short, cutting off Russia completely from world markets could have significant negative effects on the ability of many industries to source raw materials, and it could lead to significant upward pressure on metal prices, both precious metals and base metals. With inflation already high and rising, the additional cost of raw materials could make it cost prohibitive for many manufacturers and industries to continue operating like they are accustomed to.
Stay Ahead of the Curve
High inflation and price increases as a result of sanctions and war could cause prices throughout the economy to accelerate upwards. That would reduce the standard of living of most Americans, as wages and income likely won’t be able to keep up.
That’s why so many people today are looking to protect themselves against inflation. One of the traditional ways of doing that has been by investing in gold. Gold has traditionally served as a hedge against inflation and rising prices, due to its ability to gain value during tough economic times.
We’re seeing some of that today, as the gold price has already recently hit $2,000, and it could continue rising significantly as pressure on the economy increases. In the aftermath of the 2008 financial crisis, gold nearly tripled in price, and many who saw those price increases vowed that they would invest in gold the next time a crisis threatened.
If you’re looking to buy gold to protect your assets, now is the time to start thinking about it. The days of $1,200 gold and $1,500 gold may be long behind us. With high inflation, a weak economy, and war on the horizon for the foreseeable future, we may look back in a few years and kick ourselves for not having bought more gold when it was still cheap.
Don’t sit on the sidelines as your hard-earned savings lose purchasing power to inflation, and as rising prices take a bigger bite out of your pocketbook. Call the experts at Goldco today to learn more about how gold can help protect your investment portfolio.