The gold bulls are on the move once again this week, fuelled by an uptick in global geopolitical tensions and a drop in bond yields. Gold prices had been constrained for weeks as investors switched to bonds following a surge in yields. Federal Reserve Chairman, Jerome Powell has been dismissive of rising yields and, he appears to have been right, with the U.S. 10-year Treasury notes falling to 1.56% yesterday (Thursday).
The drop came as tensions ratcheted up between America and both China and Russia. On Thursday, President Biden signed an executive order declaring Russia’s actions a national emergency, specifically citing “efforts to undermine the conduct of free and fair democratic elections” and “malicious cyber-enabled activities against the United States and its allies and partners”. President Biden said Russia’s attempts to undermine international law and destabilise countries important to national security “constitute an unusual and extraordinary threat to the national security, foreign policy, and economy of the United States.”
In addition to financial sanctions, the hard line means a number of Russian diplomats are to be expelled from the USA and means US financial organisations will not be permitted to buy rouble bonds from June. Russia for its part has denied the accusations of hacking and other harmful activities such as election interference and says it will respond in kind, saying the measures are “Hostile steps which dangerously raise the temperature of confrontation. Such aggressive conduct will of course get a decisive response”. This potentially sets the stage for a repeat of the US-China trade tensions which set gold on a months-long bull run during Donald Trump’s tenure at the White House. Already, the precious metal has spiked in reaction to the Executive Order, surging 1.62% in the immediate aftermath to £1,280.48 ($1764.40).
With an increasingly fraught relationship with China also at play, expect gold to benefit from escalating tensions once again.
Act quickly, buy now.