Russia’s declaration of war against Ukraine saw crypto market capitalization slump by $200 billion in a matter of hours, while stock and currency markets also tumbled. But not all sectors were equally impacted.
Gold shines bright
Commodities, specifically gold and oil, have marked steep gains in recent weeks, and only rose further when the situation deteriorated.
Gold prices surged more than 2% after Russia’s declaration. The yellow metal is trading up nearly 8% this year, given its age-old status as a safe haven.
High inflation, coupled with expectations of U.S. interest rate hikes this year has also spurred renewed interest in gold, reinforcing its status as an inflation hedge.
Gold’s rise this year, along with Bitcoin’s decline, has quelled speculation that the latter could be an effective safe haven, or a buffer against inflation.
Oil blows past $100
Oil is another market that has greatly benefited from recent tensions. Crude prices rose past $100 a barrel for the first time in seven years, data from oilprice.com showed.
Investors fear any supply disruptions to Russian oil supply from the Ukraine conflict. As of 2020, Russia was the third-largest oil producer in the world, behind only the United States and Saudi Arabia, U.S. government data showed.
Europe is also the largest market for Russian oil, which is likely to put the bloc in a difficult position when responding to Russian aggression. Any sanctions the European Union has imposed so far have avoided the mention of crude supply.
Use commodities as a geopolitical hedge. Amid the risk of supply disruptions, broad commodities can be an effective geopolitical hedge (and) offer an attractive source of returns.
Mark Haefele, Chief Investment Officer Global Wealth Management at UBS
Safe spaces in foreign exchange
In times of political duress, the dollar is among the most sought-after safe havens in currency markets. This has seen the greenback add more than 1% this month, against a basket of currencies.
The Japanese yen and the Swiss franc have also benefited from safe-haven buying this year.
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