Gold stocks have underperformed in recent years compared to sectors such as technology and healthcare. But now the financial landscape is changing. Across the developed world, excessive government spending designed to stave off a covid-19 pandemic-inspired economic catastrophe has seen inflation soar to multi-decade highs. In the UK alone, the Consumer Prices Index inflation rate is at 5.5%. And Paul Dales of Capital Economics predicts it could hit 7.9% in April.

In the Bank of England’s latest Monetary Policy Committee meeting, it argued ‘most of the causes of the current high rate of inflation won’t last…it’s unlikely that the prices of energy and imported goods will continue to rise as rapidly as they have done recently.’ But it could be eating its words shortly.

Gold price: Russia invades Ukraine

Russia’s invasion of Ukraine has sent Brent Crude to a 14-year high of nearly $120. And JP Morgan predicts the benchmark could rise to $185 per barrel if the Russian supply hit continues. Escalating sanctions against and from Russia have the potential to send inflation in the UK significantly higher than previously predicted.

When inflation rises, it’s usually accompanied by capital flight to gold as an inflationary hedge. In July 2020, the Gold Spot struck a record $2,037/oz as pandemic-panicked investors deserted stocks for the safety of the precious metal. After dipping to $1,729/oz in August 2021, gold has now recovered to $1,948/oz. And with 70% of IG clients currently long on the metal, it could strike a new record soon.

Moreover, Russia’s invasion is also weakening global supply whilst increasing demand. Last year, Fitch Solutions Country Risk & Industry Research predicted Russia’s gold production would grow 3.7% annually until surpassing China as the global gold producing leader in 2029.

But Russia’s two largest gold miners, Polymetal International and Polyus, are now seeing their share prices collapse. As Russian gold becomes undesirable to vast swathes of potential buyers, the remaining global supply is likely to become more expensive, which will be good news for gold stocks without exposure to Russia.