Gold soared as Western nations stepped up sanctions against Russia for invading Ukraine, raising fears of a hit to global economic growth.

It jumped 2.2% at the open after sanctions were imposed on the Bank of Russia to prevent it from using its foreign exchange reserves to ease sanctions. They also barred some Russian lenders from the SWIFT messaging system that underpins billions of dollars in transactions.

The central bank raised its key interest rate to the highest in nearly two decades and imposed some controls on capital flows in an effort to protect the economy as its currency plummeted. Concerns are now growing over whether the financial chaos could hurt global economic growth or require action by the Federal Reserve to provide dollars.

Bullion is on track for its best month since May amid tense geopolitical tensions, having outperformed other safe havens. It will also be boosted by lower expectations of aggressive monetary tightening from the Fed to rein in the highest inflation in decades.

Meanwhile, Russia’s central bank announced on Sunday that it would resume domestic gold buying after a two-year hiatus. It already holds more than 2,000 tonnes of bullion, making it the fifth largest sovereign owner.

“The purpose of buying gold (domestically) is to monetize it if necessary,” wrote Nicky Shiels, head of metals strategy at MKS PAMP SA, in a note. “It is the fear of potential central bank selling that could weigh on the market.”

Gold rose 0.5% to $1,899.03 an ounce at 9:23 a.m. London time, after hitting $1,930.85 an ounce earlier. Silver and platinum stabilized, while palladium climbed 4.7%. It climbed as high as 7.8% earlier in the session on concerns over disruption to Russian exports, which produce about 40% of freshly mined supply.

© 2022 Bloomberg

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