Gold stocks soar as tensions rise over Ukraine crisis

Is this a short-term blip, or the revival of the yellow metal?

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Ahhh, there’s nothing like the safety of gold, cans of baked beans and a remote cave to hide out in, as tensions over Ukraine escalate.

Ok, I exaggerate slightly, but gold prices have staged the longest rally in a month (that’s not really a very long time though), according to the Australian Financial Review (AFR). Gold reached a six-month high after Russia decided to annex Crimea from the Ukraine last month, as demand for sol-called safe-haven assets climbed. Gold has climbed 8.4% so far this year, compared to a 28% slump in 2013.

Tensions haven’t eased, with Western powers preparing to impose sanctions 2.0 against Russians in power, and Russia showing no signs of backing down.

The current price of an ounce of gold is just over US$1,300, or around A$1,400 for Australian gold miners. Large cap gold producers Evolution (ASX: EVN) and Newcrest Mining Limited (ASX: NCM) are up 5% and 4.7% respectively in late afternoon trading, on the back of the rallying gold price. Junior miners Beadell Resources Ltd (ASX: BDR), Saracen Mineral Holdings Limited (ASX: SAR) and OceanaGold Corporation (ASX: OGC) have also seen decent gains of 4.5%, 3.1% and 3.4% respectively.

But where the yellow metal price will go from here is anybody’s guess. Even the world’s largest gold producer struggles to forecast prices. Barrick Gold Corp chairman Peter Munk has told the AFR that he finds it impossible to accurately predict the value of the precious metal, echoing similar comments by US Federal Reserve boss Janet Yellen.

Foolish takeaway

Most analysts appear to forecasting a downward trend in the near term, seemingly extrapolating from last year’s 28% fall. But investors may as well flip a coin as to which direction the gold price will go. If the Ukraine crisis escalates into serious combat clashes or all-out war, the all-time high price of more than US$1,900 an ounce could be in serious trouble of being run over. A moderation of hostilities, which appears the most likely outcome, is likely to see the gold price slip from current levels, taking gold stocks with it.

Motley Fool writer/analyst Mike King owns shares in Beadell Resources. You can follow Mike on Twitter聽@TMFKinga

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