[Safe-Haven Assets Attracting Money] Gold Prices Soar Amid Ukraine War Fears... Highest in 8 Months

[Asia Economy New York=Special Correspondent Joselgina] "The market is not in a mood to take risks."

The fear of war surrounding Ukraine has frozen investor sentiment solidly. A prime example is the sharp declines in major country stock markets whenever the sense of crisis that Russia might launch an invasion spreads. Investors fleeing risky assets are also flocking to safe-haven assets such as gold, the Japanese yen, and U.S. Treasury bonds. Since the resolution of the Ukraine situation is expected to be difficult, these safe-haven assets are anticipated to continue their rally for the time being.

◇Gold Price Surpasses $1900

On the 17th (local time), news that Ukrainian government forces and pro-Russian rebels exchanged artillery fire in the Donbas region of eastern Ukraine ignited investors' preference for safe-haven assets.

On that day, April delivery gold on the New York Mercantile Exchange (NYMEX) closed at $1902 per ounce, up 1.6% ($30.50) from the previous session. It is the first time since mid-June last year that the price of gold, a representative safe-haven asset, has exceeded $1900 per ounce.

In the foreign exchange market, strength in safe-haven currencies such as the Japanese yen and Swiss franc was also confirmed. On the New York foreign exchange market that day, the dollar-yen exchange rate fell to 114.93 yen. The yen appreciated 0.50% compared to the previous session. The Swiss franc also stood at 0.919 francs per dollar. The values of the yen and franc are at their highest levels since early this month.

The war fear that an invasion is imminent also pushed bond yields down. On that day in the New York bond market, the benchmark U.S. 10-year Treasury yield fell below 2%. The 2-year yield, sensitive to monetary policy, also dropped to the 1.4% range. The decline in Treasury yields means that the prices of safe-haven government bonds have risen accordingly. Meanwhile, the New York stock market closed lower across the board with the Dow Jones Industrial Average (-1.78%), S&P 500 Index (-2.12%), and Nasdaq Index (-2.88%).

Joe Manimbo, Senior Market Analyst at Western Union Business Solutions, conveyed the atmosphere, saying, "Investor sentiment is moving toward safe-haven assets due to the Ukraine situation." Mark Chandler, Chief Market Strategist at BMO Global Forex, said, "We don't know what might happen over the weekend," adding, "The market is not taking risks."

◇U.S. Demands "Non-Aggression Declaration," Conflict Deepens

The Ukraine situation is escalating into a crisis on the brink of eruption. The United States and Russia, whose conflict is deepening, once again exchanged heated words at the United Nations (UN) Security Council that day. Notably, the U.S. took the unusual step of detailing possible scenarios of a Russian invasion of Ukraine, drawing attention. This move is interpreted as an attempt to prevent the invasion from materializing by disclosing information and, furthermore, to seize the initiative in negotiations.

At the Security Council meeting held at the UN headquarters in New York, U.S. Secretary of State Antony Blinken introduced the U.S. intelligence assessment that a Russian invasion of Ukraine could happen at any time and urged Russia to declare a "non-aggression" pledge. He also pointed out that the shelling in the Donbas region could be a "false flag" operation designed to make it appear that Russia was the victim of a preemptive attack to justify an invasion. He argued that Russia's future moves might include ▲creating a pretext for invasion ▲calling an emergency high-level meeting under the guise of response ▲and proceeding to war.

Secretary Blinken said, "I am here not to start a war but to prevent one," and proposed a foreign ministers' meeting next week, saying, "If Russia truly has no intention of starting a war, it should immediately withdraw its troops and send diplomats to the negotiating table." This is in line with U.S. President Joe Biden's remarks to reporters just before the Security Council meeting that "an invasion could happen within days."

On the other hand, Russia dismissed the allegations as baseless. Dmitry Peskov, spokesperson for the Kremlin, stated, "Unfortunately, tensions are escalating due to President Biden's remarks." Sergey Vershinin, Deputy Foreign Minister of Russia attending the Security Council meeting, also rebutted, calling the scenarios presented by the U.S. "dangerous claims" and "baseless suspicions," adding, "It is regrettable."

Both sides still leave room for diplomatic solutions, but future negotiations are expected to be difficult. Currently, Russia continues to demand that Ukraine be excluded from joining the North Atlantic Treaty Organization (NATO), a demand previously rejected by the U.S. and other Western countries, as well as the abandonment of NATO base construction and withdrawal of military assets in Eastern Europe.

Moreover, Russia's recent expulsion of Bart Gorman, Deputy Chief of Mission at the U.S. Embassy in Moscow, has further escalated tensions between the two countries. Russia stated that this was a retaliatory measure for the expulsion of senior Russian diplomats in Washington, but the U.S. responded by calling it an "unjustified expulsion" and said it would consider it an act of escalating tensions.