Chirag Mehta's view on Russia - Ukraine War Impact on Gold

Financial markets will continue to remain vulnerable to geopolitical developments in the immediate future. Gold, which is a much-chased asset class in such times, is set to benefit as risk-averse investors increase exposure to it amid pullbacks in risk assets. Once the uncertainty on these front eases, gold prices can be expected to sober down. 

However, in the event of this conflict getting extended or escalated, we are looking at more money printing to fund military actions, higher energy prices as supplies from major exporter Russia get hit and economic sanctions against Russia as the NATO fights back. All these will fan the fire of already high inflation, take a toll on slowing economic growth and spur market volatility and risk aversion. This environment will be supportive of gold prices but will eventually clash with the Fed’s tightening cycle, which is expected to keep gold prices in check.

While the Russia-Ukraine conflict will be in the headlines for some time now, investors must keep in mind that gold is not a tactical play. One should stick to the fundamentals and allocate 10-15% of their portfolio to this strategic asset class that has time and again played a return-enhancing and risk-reducing role in investor portfolios in times of financial, geopolitical or other crisis. Those already invested should thus stay put. New investors should avoid lumpsum investment at current levels.

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