The on-going war between Russia and Ukraine has, once again, underlined the value of gold as a safe haven investment in uncertain times. Any time there is political or economic upheaval, people turn to gold as a hedge against unexpected market events and systemic risks.

Gold makes up a sizeable proportion of the gems and jewellery industry in India, and hence, fluctuations and volatility in its price have a direct impact on the sector. Says Somasundaram PR, Regional CEO, India, World Gold Council (WGC), “In spite of the Russia-Ukraine crisis, we do not anticipate any shortage of gold supply in the near term. Gold supply-demand has a self-balancing nature with a possibility of higher recycling when prices rise.”

Highlighting the value that gold continues to have globally, Somasundaram adds, “In addition to its safe-have properties, gold is a recognised source of liquidity: trading on average more than US$120bn a day. Gold carries no credit risk, but trades 24/7 and whose bid-ask spreads have remained historically tight in periods of uncertainty. Therefore, gold not only protects wealth, but can also provide liquidity for investors in periods when other holdings are either falling substantially, or, like in private markets, are not easily accessible.”

The year 2022 is likely to see the inter-play of various factors that will determine how gold will perform. Inflation, supply disruption, a new COVID variant, the extension of the Russia-Ukraine war – all these will have a bearing on gold prices and consumer buying.

“Periods of high risks and market volatility tend to be supportive of gold and events like this underscore why gold is an important long-term component in portfolios. That said, it’s important to note that gold, like other asset classes, can experience volatility as investors continuously assess their expectations and risks. Ultimately, our view is that while gold may experience some tactical positioning and, consequently, price volatility in both directions, the case for holding gold remains solid both from an investment and consumer perspective,” explains Somasundaram.

It needs to be highlighted that even before the Russia-Ukraine situation escalated, institutional demand for gold as a portfolio hedging instrument was already turning positive. This trend is expected to continue through 2022, regardless of the geopolitical situation.