As sanctions begin hitting Russia in response to the escalating situation in Ukraine, the price of precious metals and the supply of commodities could be affected.
After Putin’s announcement recognizing two self-proclaimed republics in Ukraine, U.S. President Joe Biden said that he is issuing sanctions against Russia. “We are implementing full blocking sanctions on two large Russian financial institutions … We are implementing comprehensive sanctions on Russia’s sovereign debt. That means we’ve cut off Russia’s government from Western financing,” Biden said on Tuesday. “Starting tomorrow, we’ll also impose sanctions on Russia’s elites and family members … We’ll continue to escalate sanctions if Russia escalates.”
Russia makes up 9% of the gold supply, 6% of the silver supply, 11% of the platinum supply, and 39% of the palladium supply. Palladium prices are already up 24% year-to-date and could rally further as sanctions redirect existing trade routes. Russia is expected to pivot away from Europe and toward China. “Russia has already committed to sending 100Mtpa of coal into China over the coming years, which will help China offset its Australian coal ban," said BMO Capital Markets commodities analyst Colin Hamilton.
Gold and silver are already gaining attention due to their standing as safe haven assets. Some analysts think that gold could reach prices as high as $2075 per ounce geopolitical tensions continue to escalate.
“Russian supply is not necessarily as significant on a global scale but is well established into developed markets. And perhaps more importantly, these markets already have low inventory availability,” Hamilton said. “The shift in trade flows should aid inventory cover in China, which is now a net importer of primary aluminum. However, European purchasers’ concerns will be raised further, and we would expect premiums over LME price into both Europe and North America to push higher in the near term.”
Investors looking for exposure to physical gold can look at the Sprott Physical Gold Trust PHYS. Silver can be accessed via the Sprott Physical Silver Trust (PSLV ).
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