Crisis Currency

Munich, 01 Mar. ’22

Will the demand for precious metals see a rise?

The month of February was dominated by the Russia-Ukraine conflict and now finally came to a head at the beginning of last week with the incursion of Russian troops into Ukraine. This was promptly followed by a market reaction and the European stock exchanges recorded their biggest daily loss in quite some time on February 24, 2022. While the stock markets were characterized by high volatility in February and turned deep red, however, precious metals, above all gold, rose significantly in value and impressively asserted their historic position as a “crisis currency” and portfolio hedge.

Thus, from mid-February, gold managed to break out of its sideways movement between USD 1,750 and 1,850, which had existed since the summer of last year, and to regain the important price level of USD 1,900. The question now is how sustainable gold can now hold the regained old level? In the short term, the precious metal – based on its relative strength – is approaching the overbought zone, so that a setback seems quite possible.

However, whether gold manages a sustained breakout and heads for USD 2,000, or whether it should approach the price level of around USD 1,840 again in the short term, is likely to continue to depend on Russian action. Considerations on the part of central banks to take the increased commodity prices and geopolitical risks even more into account in their interest rate decisions are also factors on which the gold price development will depend in the medium term. At the current time, however, it can be stated: Gold remains a reliable component for many investors in terms of portfolio hedging.

Article by Markus Polz

Head of Asset Management at CM-Equity AG & MD at CM-Equity KVG, the capital management branch of CM-Equity.

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