I observed the actual price of gold, oil, and major cryptocurrencies that dramatically changed compared with the situation before the Russian-Ukraine war occurred. The Russian invasion of Ukraine has significantly affected the global economy since it started on February 24th, 2022 until at this present time. I gather the information that can help us to predict the demand for oil, gold, and cryptocurrency which are interesting products that have similar relational trends in the future economic.
Oil prices affected by the Russia-Ukraine war
Russia is the second-biggest exporter of crude oil, and the world’s largest natural gas exporter, which is vital to heating homes, powering planes, and filling cars with fuel. The Russia-Ukraine conflict has driven the price of oil to jump to a high level which is close to the highest price in 2008.
Oil price in US dollar Source: Bloomberg
Oil prices are very high during this crisis because Russia’s invasion of Ukraine has led to sanctions against the Russian Federation. This situation seems to cut off the world’s second-largest oil producer from global supply chains.
After launching the war, the crude oil prices will fluctuate in every country which drive inflation higher and the global economy slowing down. The yellow line is a residual fuel oil that is going on top in 2022 when the war starts.
Global major demand for energy products during the Russia-Ukraine war
- Predicted demand and supply of oil price if the war between Russia and Ukraine is strongly violent,
The input price to produce oil strongly increase
-> Supply tends to be decreased
Oil consumption tends to increase greater than normal to combat the war
-> Demand tends to be increased
Gold price affected by the Russia-Ukraine war
The energy price or crude oil price is higher, it slowdown the global economy and pushes high inflation leading to a major spike in gold prices. The price of gold pushes above $2,000 per ounce after the Russia-Ukraine conflict helped it rise by 6% during the first quarter of 2022 as shown in Figure 6.3
Figure 6.3 Interest rate in gold on the futures markets increases indicating the high demand. Investors have increased their long positions in gold with the possibility of physical delivery.
The global economy gains more profit from oil and more enhanced gold market investment. The correlation of oil price and gold price levels trend upward together. The bigger war will increase oil prices which leads to a rise in the demand for gold so that most investors buy gold to diversify out of inflation-losing assets like bonds and cash.
- Predicted demand and supply of gold price if the war between Russia and Ukraine is strongly violent
The oil price increase will automatically so the input of raw materials is also increased, then push the price of gold is higher
-> Supply tends to be decreased
During the war, investors buy more gold to help in protecting the purchasing power of money. It reduces their exposure to volatile assets such as equities or debt.
-> Demand tends to be increased
Major cryptocurrencies affected by the Russia-Ukraine war
Cryptocurrency prices are down up to 10 percent as Russian President Vladimir Putin announced a ‘military operation’ in Ukraine. As geopolitical uncertainties grew, the crypto market capitalization dipped into the reds wiping out 8 percent of the market cap at $1.59 trillion. Bitcoin, the oldest and the largest cryptocurrency, is currently down by 8 percent and is trading at Rs 27,59,004 ($34,989).
Bitcoin price in US dollar Source: Refinitiv
The market of Oil prices significantly impacts cryptocurrency prices. They are correlated to varying degrees, and they impact each other on a macroeconomic scale. Whenever the oil price increase, US dollar tends to be stronger, which push cryptocurrencies’ price down and fluctuate. Bitcoin which is the most popular crypto has lost almost 60 percent this year alone as shown in Figure 6.4. It is also driving the demand for major cryptocurrency increase as it can protect the owner during the war as a gold benefit as shown in Figure 6.5
Major cryptocurrency percentage during Russia and Ukraine war: Refinitiv
- Predicted demand and supply of cryptocurrencies if the war between Russia and Ukraine is strongly violent.
With the oil price increase, US dollar for trading will be stronger affecting the price of cryptocurrencies going down. So, people stop to sell cryptocurrencies, waiting for a good selling price.
-> Supply tends to be decreased
Cryptocurrencies have higher demand as a currency or store of value in countries. It can help to protect and save their asset and transfer them during war and sanctions.
-> Demand tends to be increased
In terms of economic analysis, there are 3 possible cases that happen when the supply of Oil drops, and the demand for oil increases. This graph can be used to explain the demand and supply of gold and cryptocurrencies since they both are getting an effect in the same direction.
Economic Analysis demand and supply of Oil, Gold, and cryptocurrencies
The equilibrium price of oil will absolutely increase in the future but the change in the demand trading quantity of oil will be uncertain. I suppose that case 2 can point out the real situation if the war is continuing bigger. A large amount of utilization of weapons is built in Russia and Ukraine. The demand for raw materials to produce oil will hugely increase. It leads to the supply of oil moving into shortage.
The equilibrium price of gold will absolutely increase in the future but the change in the demand for trading quantity of gold will be uncertain. I suppose that case 2 can point out the real situation if the war is continuing bigger. Gold is the most important and beneficial commodity due to uncertain geopolitical from the war. So, the demand quantity of gold would be increased. Gold is widely trusted as a safe haven asset. The reason is that it has an excellent track record of protecting, and in many cases building, wealth through periods of crises. During the war, the returns on bonds, equities, and real estate fell, and the interest in gold investing can increase, rise the price of gold.
The equilibrium price of cryptocurrencies will absolutely increase in the future but the change in the demand for trading quantity of cryptocurrencies will be uncertain. I suppose that case 2 can point out the real situation if the war is continuing bigger. The demand quantity for cryptocurrency will be increased to support the downtime economy from the war. The volatility in global financial markets will happen therefore people try to find a way to save their own asset as using digital currency also benefit this situation. Cryptocurrency can store cash during war or disaster because it has a limited supply and runs on a global computer network which cannot be tracked by governments and is safer than traditional currencies.
This blog is a part of my economics course at Assumption University
Thank you to my advisor Dr. Witsaroot Pariyaprasert
Reference
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