Where is Gold Headed?

We all know what happens during times of rising inflation or pending recession: our televisions become inundated with gold commercials. “Buy gold now to protect your future” or “Cash for gold” ads are blasted every minute across every channel. It’s no secret that gold has been a hedge against inflation for the past century. Its value has persisted for thousands of years. It would seem like gold would be a great bet given the current state of the world, still dealing with the aftermath of a global pandemic, inflation, and war.

For the most part, gold has seen moderate success. The price of gold is up 9.7% since the start of the pandemic (March 2020), and in 2022 alone, it has risen 6.7%. For comparison, the S&P 500 Index is down 5.67% in 2022. It would appear gold has proven itself so far as a worthy hedge against uncertainty and inflation once more. Yet, there is concern that much of its rise this year has been related to the actions of Russia, notable its invasion of Ukraine and subsequently, the sanctions that have been imposed upon it.

These sanctions against Russia imposed by the United States and other countries have caused a collapse of the Russia ruble (Russian currency). In response to these sanctions, Russia has attempted to use gold as its currency in order to alleviate the stress the sanctions have had on their economy. Instead of using Russian rubles to purchase goods and services from countries, they are using their massive supply of gold. According to US sources, they have up to $100 billion to $140 billion in gold reserves (CBS). They can use this gold in two different ways: 1) either to directly purchase goods or 2) to simply exchange the gold for another currency (albeit US Dollars or the Euro) and then use that money to purchase the goods or services needed.

So, while gold prices have risen this year, there could be some cause for concern, as the US and other countries have discussed the possibility of including gold sanctions among the already-present sanction imposed against Russia. This would essentially eliminate countries from dealing with Russia using gold. What impact might this have on gold? It may be difficult to tell. Gold has had a good start to 2022, but all the stars have aligned for it to have risen: uncertainty, inflation, war, and sanctions against Russia. As we go further into 2022, it remains ambiguous as to where gold could be headed, especially if these new sanctions are implemented soon.