Gold and oil funds back in favour as investors fear Russian war

Investors are once again piling into gold and oil exchange traded products (ETPs) in a rush to grab safe haven assets amid concerns over a military escalation between the West and Russia in the Ukraine and unrest in the Middle East.

According to ETF Securities, long-dated gold funds have seen their seventh straight week of net inflows, with $13.4m flowing into ETPs last week as investors become increasingly defensive.

"Russian posturing appears to be escalating and increasingly questioning Ukrainian sovereignty and the UN has urged Western nations to intervene," said ETF Securities in its latest note to investors. "While oil and gold prices are yet to react to heightened risks, investors are rebuilding hedges into their portfolios."

However, gold prices have fallen back in recent weeks below $1,300 (£784) per ounce, while future for the precious metal dated December recently fell to around $1,284 per ounce. Oil prices have also softened in recent weeks with Brent crude approaching close to its $100 per barrel resistance level.

"Russia is the world's second biggest oil producer after Saudi Arabia, accounting for 13pc of global oil output and 16pc of world total exports in 2013. Should Russia ban oil exports, it is unlikely that Saudi Arabia capacity to fully compensate for the loss in production. With the EIA (Energy Information Administration) forecasting a 9,000 barrel a day surplus in 2014, the loss of a portion of the 10.7m barrels a day from Russia could have a substantial impact on prices," said ETF Securities in the mote.

ETPs had come under pressure last year as investors began to turn bearish on safe-haven commodities such as gold in readiness for the US Federal Reserve raising rates and the US dollar strengthening.