Russia mutiny scare pushes up gold prices

Gold (GC=F) extended gains again on Tuesday after political uncertainty in Russia at the weekend prompted investors to opt for the safe-haven appeal of the precious metal.

Gold futures edged up 0.07% to trade at $1,935.10 (£1,520.68) an ounce.

It comes after bullion fell nearly 2% in the previous week and also touched its lowest level since mid-March on Friday.

“We are seeing some modest safe-haven demand in gold on the Russian incursion that was quickly aborted over the weekend. But there are still some underlying worries,” Jim Wyckoff, senior analyst at Kitco, told Reuters.

“The marketplace wonders what’s going to happen next because the Russian military appears to be destabilising. Putin appears to see his power weakening, and that has major implications around the world.”

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Investors monitor Russia developments

However, other experts have said that Russian president Vladimir Putin and Yevgeny Prigozhin, leader of the Russian mercenary Wagner Group, could have orchestrated the attempted coup as part of a Kremlin plan to put Prigozhin in Belarus, where Wagner could then form a movement on Kyiv.

The motive remains unclear but investors are closely watching the situation due to the potential market impact.

“How long-lasting this boost to the gold price proves will be determined by how widespread the butterfly effect of the aborted rebellion by Yevgeny Prigozhin’s Wagner Group turns out to be,” Rupert Rowling, market analyst at Kinesis Money, said in a company report.

“If this proves to be the beginning of the end for president Vladimir Putin’s totalitarian control on Russia, then the resultant uncertainty is likely to keep gold supported in the medium-term with investors wanting to keep some risk off the table.”

Russia’s importance for gold supplies

Rowling noted that Russia is the world’s second largest producer of gold.

“While there is no suggestion at this point that production and exports will be impacted, it is worth keeping in the back of investors’ minds as it could prove one of the rare occasions where fundamental factors do influence the gold price should that situation change,” he said.

Other factors impacting gold

The current uncertainty in Russia appears to be outweighing risks surrounding interest rates following hawkish comments from the US Federal Reserve. This is important to note because higher rates subsequently discourage investing in non-yielding gold.

Read more: Bank of England set to push UK 'into recession'

On 14 June, the Fed decided to leave interest rates unchanged but forecast in its projections that it will raise interest rates as high as 5.6% before 2023 is over in order to bring down inflation.

"Spot gold may revisit sub-$1,900 levels in the near term if markets begin to take heed of (US Fedreal Reserve) Chair Powell's hawkish warnings and price in a second 25 bps rate hike by the Fed later this year," Han Tan, chief market analyst at Exinity, told Reuters.

Meanwhile, the dollar index eased slightly on Tuesday, which also supports the price of gold as it makes the dollar-priced bullion more attractive for overseas buyers.

Read more: FTSE rises as UK food inflation eases in June

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