The Russia-Ukraine conflict: The impact on stocks, gold and oil March 9, 2022
The escalation of the conflict between Russia and Ukraine continues. This has led Western leaders to impose sanctions on Russia. As the conflict rages on, it has created several implications to the global markets.
Impact on global Indices
Risky assets such as stocks tend to retreat when geopolitical crises dominate the headlines. Due to the short-term uncertainty and volatility within the stock markets, investors then tend to move their assets from equities into save havens such as gold and bonds.
Therefore, as the demand for stocks declines during geopolitical crises, it creates a downward pressure on global indices.
The Dow Jones Industrial Average (DJIA) fell more than 270 points, the S&P 500 Index fell about 0.6%, and the tech-heavy Nasdaq Composite traded down nearly 1% on Tuesday 22 February 2022.
In times of uncertainty, gold tends to be a safe investment and a desirable asset for investors. Gold’s safe haven appeal attracts investors during a period of heightened geopolitical tensions and war.
Other asset prices are affected immediately in the event of war or even the threat of it, and wars also mean excessive money printing and accelerated government spending.
Spot gold prices climbed from USD1800.80 as of (00:00 NY Time) on 1 Feb 2022 to USD1941.14 as of 4 March 2022. In less than one month, spot gold prices have seen an increase of about 6% due to the continued escalation of the conflict.
Before the tensions between Ukraine and Russia started, the demand for oil surged tremendously as economies were recovering from the COVID-19 pandemic. However, there was a fundamental mismatch between supply and demand as some OPEC members did not produce as much oil as they agreed. Therefore, the price of oil was increasing even before the conflict escalated.
Now the conflict has impacted energy markets, as Russia is one of the world’s largest producers of oil and natural gas, accounting for 17% of the world’s natural gas and 12% of its oil.
Coupled with the recent sanctions imposed on Russia by the Western leaders, there are worries that Russia might retaliate by cutting back its oil exports.
As shown in the charts above, both US West Texas Intermediate (WTI) crude and Brent crude have reached a high of USD 110.60 and USD 112.93 on 2 March 2022, their highest since September 2014.
With the conflict escalating, global indices will continue to face downward pressure while oil and gold prices will continue to rise.
About the author
Alvin Teo graduated from Nanyang Technological University with a Bachelor’s Degree in Economics. Coming from an Economics background, he strongly believes in the importance of understanding the macroeconomic policies before making investment decisions. Alvin started investing in Singapore equities at the age of 21 and thus, he has relevant experience in the Singapore market.