G7 restricts gold exports to Russia, but the safe-haven function remains

It is reported that 90% of Russia's gold exports go to the G7 countries, a large part of which is exported to the UK. On the 26th, before the G7 summit in Germany, the United Kingdom, the United States, Japan and Canada announced that they would ban gold imports from Russia. The four G7 members believe that the precious metal is Russia's most important export commodity outside the energy sector, and an import ban could be a blow to Russia.

​​

Aggressive rate hike bets have boosted the greenback some time ago, with the dollar index hitting a near two-year high of 105.801 earlier this month. Terminal pricing of higher benchmark rates has been a key support for the dollar, but that source of strength has faded in recent days. The market should return to a tug-of-war between rising front-end interest rates (bearish for gold) and an increased likelihood of recession (meaning a quicker halt to rate hikes or even faster rate cuts, bullish for gold).

​​

In the first half of this year, the sluggish supply and inflationary shock caused by the conflict between Russia and Ukraine dominated the commodity market, and the market is currently encountering huge resistance. The bearish view will be tested. Gold prices are now close to where they were at the start of the year after the Russian-Ukrainian conflict sent gold prices soaring to a record, with consensus forecasts for the fourth-quarter price of gold only slightly above current levels. But doubts about the Fed's ability to fight inflation without triggering a recession are supporting gold, and a hard landing in the global economy could reinvigorate safe-haven demand.

​​

At present, the overall monetary environment in the United States is still in a contractionary channel, so it is still difficult to be optimistic about the absolute return of buying gold. However, given that the price of gold is still anchored at a high inflation level, before inflation indicators can not see a significant peak and fall, gold may It is also difficult to fall.

​​

Some parts of the world will no longer use the dollar for trade, which will break the hegemony of the dollar. This is not going to happen overnight, there will be a transition period that will lead to higher gold prices. Currencies, including the U.S. dollar, can become unstable as global political uncertainty rises, and gold is a safe haven.

Gold remains trapped in the $1,780-$1,880 range it has formed since early May. Unless the dollar moves significantly in one direction, it will be difficult for the gold market to change its current dynamics. In the short term, the central bank's sharp interest rate hike is not good for the non-yielding asset gold itself, but as the prospect of economic recession improves, gold will show a safe-haven feature. Therefore, prices may continue to move sideways in the short term, depending on which of the two influencing factors happens to prevail.