Precious Metals Climb as Inflation Reality Sinks In

Despite the possibility of additional Russian sanctions amid newly discovered Russian atrocities, the Russia-Ukraine war has become largely baked into the market outlook. This has allowed attention to return to the inflation question, which in turn has a bullish effect on precious metals. Metals historically perform well during times of inflation, and the U.S. Mint reported a 73% surge in bullion coins last month.

“People increasingly realize that high inflation is not temporary but has come to stay – and most likely get even worse, especially in Europe,” said Thorsten Polleit, chief economist at Degussa, in a statement to Kitco News. “The war in Ukraine represents a huge risk for the eurozone. For instance, if the inflow of oil and gas and coal from Russia into Europe comes to a shrieking halt, a very severe recession with mass unemployment and the collapse of various industries would be most likely.”

Inflation has become a substantial threat, and with further geopolitical uncertainty down the road, some investors are looking toward diversifying into physical assets. Ole Hansen, head of commodity strategy at Saxo Bank, said to Kitco, “Physical as well as investment demand remains solid for the simple reason investors (retail and professional) see inflation everywhere. While in 2021, it was something we talked about, it has now become a reality, with everyone around the world feeling the impact of surging prices on everything.”

Gold is widely expected to hit the $2,000 mark soon. Aside from being in a fundamentally bullish position, there are additional factors that strengthen gold’s investment case. Russian sanctions mean that less gold will be exported from Russia, meaning in turn that supply is being reduced even as demand surges. “The gold market is usually in surplus,” said Suki Cooper, an analyst at Standard Chartered Plc. “If Russia’s demand grows, its mine output is not reintroduced to the international market and the excess supply is mopped up by ETFs, the gold market could be closer to balance for the first time since 2015.”

Investors looking to get exposure to gold or silver can find it in the Sprott Physical Gold Trust (PHYS) and the Sprott Physical Silver Trust (PSLV ), respectively. Another way to gain exposure to gold is to invest in gold miners through the Sprott Gold Miners ETF (SGDM ) and the Sprott Junior Gold Miners ETF (SGDJ ).

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