Gold Spikes on Higher Inflation, Fears Over Ukraine Invasion

If you’ve been wondering what it would take for the gold price to finally perk up once again, now you know. With the recent press surrounding an alleged potential invasion of Ukraine by Russia, the gold price has spiked to nine-month highs. Coupled with inflation rising last month to hit 40-year highs, and more chatter about a slowing economy, and this could be the impetus gold needs to get out of the rut it has been in for the past several months.

What Effect Would an Invasion Have on Gold?

There’s a lot more tied up in Eastern Europe than just a potential invasion. And in fact the purpose of such an invasion would be unclear.

Right now, Ukraine sits atop natural gas lines that provide much of Western Europe with energy and heating power. The country is a crucial part of European natural gas transmission. But Russia has had issues in the past with that transmission, and would prefer to cut Ukraine out of the loop.

That’s the reason for the Nord Stream 2 pipeline, which would run directly from Russia to Germany. That would benefit Russia since it would provide a direct connection to Western Europe without the potential interference of intermediary countries. And it would benefit Germany since it too would receive gas directly from Russia.

Once that pipeline is complete and operational, the economics behind an invasion of Ukraine no longer make sense. Then the only reason for an invasion would be if Ukraine were to join NATO, in which case invading the country would create an additional buffer against a NATO invasion of Russia. Is there any likelihood of that happening?

Markets seem to think that there’s certainly at least some possibility that might occur. And the unease over what might transpire is certainly helping lead to unease in markets. An invasion of Ukraine would lead to immediate sanctions against Russia, the very real possibility of a shutoff of natural gas exports to Europe, and severe turmoil in world energy markets.

At a time when oil prices are already pushing up toward triple digits, gasoline and natural gas prices are higher than they have been in years, and the rising cost of energy is impacting millions of American households, turmoil in energy markets is the last thing anyone needs.

Even if an invasion doesn’t occur, the threat of invasion that the White House keeps pumping could be enough to keep stock markets depressed. And the recent unease in markets has certainly shattered the confidence of many that stock markets might continue to push towards new record highs.

Right now the Dow Jones is down over 6.5% year to date, while the S&P 500 is down over 9%. Meanwhile gold has pushed up towards $1,900, and could push even further as the year progresses.

Inflation and Economy Weighing on Markets

High inflation and a weakening economy are also weighing on markets, with markets becoming increasingly fearful of economic headwinds. The recent inflation miss really roiled markets, which had expected only a slight increase in the inflation rate. Instead, they saw a massive acceleration that could point to continued rising inflation in the future.

With even Fed policymakers warning that inflation could get much worse before it gets better, the prospects for inflation declining anytime soon are slim. Markets could be in for a wild ride if inflation continues its incessant upward creep. And investors who fail to protect themselves against rising inflation could see the value of their savings and investments eaten away ever faster.

But every dark cloud brings with it a silver lining, or in this case a golden lining. The worse the economy performs and the higher inflation rises, the more demand for gold will rise as investors seek the safety and security of precious metals. And that rise in demand should put significant upward pressure on the gold price.

Some analysts are even predicting that the gold price could rise to $3,000 an ounce. Goldman Sachs’ target is $2,150 an ounce for the next year, up from $2,000, and that target could very well increase if both inflation and tensions in Eastern Europe continue.

The Importance of Gold

It’s important to remember that investing in gold isn’t a short-term get rich quick scheme. In an age in which many retail investors have become day traders rather than long-term investors, always looking for quick profits, that can be hard to stomach.

We all want to get rich, and we want to get rich now, but it’s important to remember that really building wealth takes time and effort. And gold can help in that wealth-building effort over the long term. If you’re looking out over the next decade, the outlook for gold is looking increasingly bright.

With no one in Washington paying attention to major systemic issues like the national debt or the upcoming bankruptcy of the Social Security system, and no policymakers serious about actually combating inflation, there’s every reason to believe that the underlying support for a higher gold price will remain for some time to come.

For as many investors have already jumped onto the gold bandwagon, many others remain on the sidelines. Maybe they understand intellectually how gold can help protect their savings against inflation and stock market crashes, or how it can help maintain their wealth in retirement. But for one reason or another they just haven’t converted their knowledge into action. Well, now is the time to act.

After months of both stock markets and gold markets moving in relatively narrow trading ranges, waiting to see which way the economy would head, it seems clear that stocks are starting their move not just into a correction, but into a bear market. At the same time, gold’s recent jump in price is providing momentum to precious metals and reminding many investors that gold could continue to make a momentous run.

Now is the time to decide whether or not to protect your assets with gold. Do you get in now before gold takes off in the coming years, or do you continue waiting on the sidelines, hoping that you’ll have an opportunity to buy when it gets cheap again?

If you wait too late, gold may take off, leaving you wondering what could have been. And you run the risk of a stock market crash or financial crisis crushing the value of your existing investments, leaving you mad at what you should have done.

Don’t let your hard-earned wealth fall victim to higher inflation or the stock market collapse that may come. Call the experts at Goldco today to learn more about how gold can help protect your savings and your dreams of a comfortable retirement.