Its standard theory is that the gold price will rise as a safe-haven asset in any geopolitical crisis.
But yesterday, the world witnessed a different picture I mentioned in my last article, and gold may drop because of Russian reserves and profit-taking zone. And my prediction became true. After rising 630 pips, gold dropped more than 900 pips.
There may have been two reasons that gold dropped yesterday. Profit-taking purposes Sanction against Russia
If the USA and their allies give brutal sanctions against Russia, Russia will have only two alternatives Using gold to protect their economy Using cryptocurrencies Russia minimized its USD reserve from 40% to 13% before attacking Ukraine. So, Russia also knew they would have to face sanctions if they attacked Ukraine. So, Russia wisely managed it.
To protect Russia from sanctions, they may use both gold and cryptocurrencies. They may use cryptocurrencies for general international transactions that may hike the crypto prices.
And they will use the gold reserve to protect their economy as a hedge against inflation. So, if Russia uses a gold reserve, won't the gold price rise? No, instead, it will drop. If the gold price is high, they will get more cash from other countries. So, the USA won't let it be, and commodities prices will be high like oil and gas.
If the commodities prices go high, the sanction won't work against Russia because the European countries depend on Russian oil and gas. Instead, European countries will have to pay more for oil and gas prices. Europen needs Russian gas and oil rather than Russia to sell oil and gas to European countries.
So, if NATO and its allies only sanction gold will not rise; instead, it has big chances to drop.
When can gold rise?
If NATO and its allies also announce or start a war against Russia, there is no doubt that gold price will touch the sky. Start a war against Russia. The situation has not been started yet. It may take some more days.
NATO and its allies are punishing Russia by just putting only sanctions. Sanctions may hurt the Russian economy, not the world economy. The gold price won't go up much only by sanctions. It needs war, not only sanction to go upside.
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We have updated our gold chart and analysis for the next week. Let's check it out.
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We have updated our gold chart and analysis. Please check it out here.
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WE have updated our Gold weekly Forecast: From 7th March To 12th March 2022
How wont the price of gold go high if they are using a gold reserve. Its based on supply and demand. If russia is buying gold to hedge from economic risk, that means high demand, low supply since they are holding and not selling. This creates supply shortage and allows price to go high. It seems like a correction is due to geopolitical tensions and high increase due to the commencement of the war. However, it seems like gold is still headed higher due to supply and demand. Like you said, they get more cash... US will have no choice to let it be as they aren't in a position to sell their gold. If they sell their gold, they are facing deflation in markets which they don't want during these vulnerable times. Do you agree?
kluzaklien
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@vincentfaga Won't Russia be using their gold reserves to buy/import goods etc thus taking market buyers away (less demand since countries will potentially be getting gold from Russia in barter and at a discount) and eventually becoming sellers of that gold, dropping its price? or is that dumb thinking?
vincentfaga
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@kluzaklien, yeah that seems true. yeah i feel like the russian rubbel will collapse and russia will use gold to purchase goods. it might be a similar scenario as turkey where they buy gold and sell it from damage in the currency