Ukraine fallout: gold reaches 17-month high as oil price surges above $100

The Ukraine fallout saw gold reach a 17-month high as the oil price surged above $100 per barrel after the Russian invasion started, with the gold price rising more than 3% to almost $1,974 per ounce, the highest price since September 2020.

Brent crude oil increased by 9.2% to $105.79 per barrel at one stage, crossing the $100 threshold for the first time since 2014. Global sanctions can potentially cut Russia’s resources from global supply chains, which could see the oil price escalating even further.

Prof. Jannie Rossouw, visiting professor at the Wits business School, says it is highly likely that investors will start speculating in gold as a resource as it is still freely available in South Africa and it is clear that this has already started happening considering how much the price has increased already today.

It is also possible that they will use the rising oil price to make money as well, because that is what investors do, he says.

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However, Rossouw warns, that if the exchange rate weakens and the rand falls again to R19 for a dollar, South Africans can see fuel price increases that will make their eyes water.

Regardless of the fact that the fuel levy for this year was not increased in the budget speech on Wednesday, the fuel price will go up, he says, the question is just by how much.

Gold and crude oil are both dollar-denominated assets and are closely linked to inflation as well. When the price of crude oil increases, inflation also increases, while gold is considered a good hedge against inflation.

The impact of cutting Russia’s resources, as well as oil and gas, from global supply chains will be felt globally as inflation is already high, which is prompting central banks to increase interest rates.

The price of crude oil was already high due to a supply deficit as major oil producers, including Russia, struggle to increase production to meet strong post-pandemic demand.

The war between Russia and Ukraine is also expected to disrupt natural gas supplies to Europe which will lead to price increases that would in turn affect oil prices as switch to oil instead for power generation.