Gold Inches Higher on Impending G7 Sanction on Russian Gold Exports

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Gold prices rose on Wednesday as G7 leaders plan to officially ban gold imports from Russia. The sanction could potentially tighten supplies of the yellow metal.

Spot gold is currently trading at $1,835.20 per ounce as of 0810 GMT.

On Sunday, British Prime Minister Boris Johnson said the ban would directly hit Russian oligarchs and strike at the heart of Vladimir Putin’s war machine. He said, “we need to starve the Putin regime of its funding.” Gold has been Russia’s second top export, reaching almost $19 billion in 2020. Around 90% of that export was to G7 countries, more than 90% of which (nearly $17 billion) went to the UK.

The G7 expects to formally announce the ban on Tuesday. However, it is unclear whether there was a consensus on the plan. European Council President Charles Michel said they would discuss the issue carefully. G7 leaders will also discuss price caps on energy to limit Russian oil and gas profits. They will determine how it would fit with the U.S., EU, British, Canadian and Japanese sanctions regimes.

OANDA senior analyst Jeffrey Halley commented that the gold ban on Russia provided some short-term support for bullion prices. But it is not likely to make a significant impact on the supply/demand outlook. Gold has been trading between $1,780 and $1,880, and it needs a major move by the dollar to change that dynamic.

Stephen Innes of SPI Asset Management agreed that the news would be quickly digested. After which, interest rate hikes and recession would continue the battle for influence on gold price direction.

On the technical front, FxStreet senior analyst Dhwani Mehta predicted gold to retest the critical barrier at $1,842. However, the 14-day Relative Strength Index remains below the midline, which indicates a hard road to recovery. She sees immediate resistance at $1,845 and initial support at $1,827.

In physical trading, retail demand in India has been weak since the wedding season is over. Dealers offered as much as $8 discounts to lure buyers. A local trader expects retail demand to remain muted for the next few weeks. In China, trading volumes were thin, but some consumers purchased golf to hedge against inflation and geopolitical issues. Dealers charged premiums of $2-3 an ounce.

In a related development, the holdings of the largest gold-backed exchange-traded fund in the world, SPDR Gold Trust, fell 0.2% to 1,061.04 tons on Friday. Also, the International Monetary Fund (IMF) cut its growth forecast for the U.S. as aggressive rate hikes dampened demand. But the IMF predicted that the U.S. would avoid a recession “narrowly.”