International gold prices fell slightly on Tuesday, as Russian and Ukrainian officials held the first round of cease-fire talks overnight, curbing demand for safe-haven gold. But Russia's invasion of Ukraine is seen as a game-changer, and demand for safe-haven assets is expected to remain stable.
Spot gold fell 0.08 per cent to $1907.12 per ounce at 15 44 Beijing time; the main COMEX gold contract rose 0.43 per cent to $1908.9 per ounce; and the dollar index fell 0.08 per cent to 96.691.
High-level talks between Ukraine and Russia ended last night with no agreement other than continued negotiations, but Asian markets stabilized amid signs that sanctions would not escalate immediately.
Jeffrey Halley, a senior analyst at OANDA, said the volatility in risk sentiment in New York overnight largely reversed the Ukraine-related panic in Asian and European markets on Monday. Previous sanctions against Russia were tightened over the weekend.
"investors are no longer so worried that the war in Ukraine will lead to a double-dip recession, [and] it will cause them to withdraw from safe havens such as gold and re-enter the stock market," he said. " Better-than-expected Chinese data also boosted sentiment, he added.
Thanks to the pick-up in demand, both official and manufacturing PMI rebounded in the traditional off-season in February, indicating that China's manufacturing sector has maintained its recovery and that the effects of stable growth policies are gradually transmitting to the real economy. There was also a marked pick-up in construction activity in the non-manufacturing sector.
But the withdrawal of capital from Russia has accelerated since Russia invaded Ukraine as Western sanctions against Mr Putin's government have intensified. The United States and Europe have expelled some of Russia's biggest banks from SWIFT, the global payment system, and announced other measures to limit Moscow's ability to use $640 billion in reserves.
Russia's central bank said it would resume buying gold in the domestic market, launch unlimited repo auctions and relax restrictions on banks' disclosure of foreign exchange positions. It has also increased the range of securities that can be used as collateral to obtain loans and ordered market participants to reject bids from foreign clients to sell Russian securities.
Analysts at Rabobank warned that sanctions on Russia's foreign exchange reserves removed what little support the rouble had. "if no one can exchange foreign exchange, even gold is illiquid," analysts at Rabobank warned. "
