Trump’s tougher Russia sanctions jolt oil and gold markets

Oil price surged while Gold plummeted after Trump ramped up pressure on Russia with sanctions on Rosneft, headed by Putin’s friend Igor Sechin, and the privately owned Lukoil. West Texas Intermediate rallied to almost $60 per barrel, and Brent gained 3% to trade above $64 as gold descended toward $4,000 an ounce after losing 0.5% on Thursday.

President Trump intensified pressure on his counterpart, Vladimir Putin, for lacking commitment to peace in Ukraine. He also threatened stiffer tariffs on India, a key buyer of Russian oil, warning the country to stop buying oil from Russia or suffer the consequences. Senior refinery executives in India stated that the flow of Russian crude oil will gradually decrease to near-zero, noting that the restrictions make it impossible for the flow to continue as usual. 

Treasury Secretary Scott Bessent said in a statement that his office is sanctioning Russia’s two oil giants that fund the Kremlin’s war machine, given Putin’s refusal to end the senseless invasion of Ukraine. He added that the U.S. encourages its allies to join and adhere to the sanctions. However, Trump said he hopes the sanctions on Russia will not last despite acknowledging that his talks with Putin do not seem to go anywhere.

Meanwhile, Trump’s aggressive attempts to reshape global trade and heightened geopolitical uncertainty have also led to a decline in gold prices. Spot gold fell 2.9% on Wednesday after it tumbled nearly 6.3% on Tuesday. The retreat abruptly stopped the gold rally that had been ongoing since mid-August. However, Darwei Kung, Head of Commodities and Portfolio Manager at DWS Group, said the pullback does not change his long-term bullish view on gold.  

Ziemba says the U.S. has taken meaningful measures

Rachel Ziemba, an analyst at the Center for New American Security in Washington, said the sanctions on Russia’s crude are one of the meaningful measures the U.S. has taken. However, she believes the extensive use of illicit financial networks will likely blunt this move. Ziemba claims it will eventually come down to whether India and China fear further escalation in secondary sanctions. 

The two countries became the biggest buyers of Russian oil after other nations shunned Moscow for its invasion of Ukraine. However, Trump imposed crushing tariffs on India for continuing the trade, but has spared China from any action. Meanwhile, the UK sanctioned two Chinese energy firms last week and penalized Rosneft and Lukoil.

“The market will take time to digest exactly what this means … It’s likely to be a major cause of concern for the refiners in India and China.”

–Vandana Hari, Founder of Vanda Insights.

Meanwhile, on Tuesday, Trump stated that India’s Prime Minister Narendra Modi assured him that the country would reduce its purchases of Russian crude oil. Previous U.S. measures included a Group of Seven price cap on Russian oil, which limited the Kremlin’s revenue without disrupting global supply or causing spikes in global oil prices.

Day claims the drivers of gold have not changed

Despite the slump in gold prices, Adrian Day, owner of the namesake asset management firm in Maryland, said gold prices will find a floor within a few days because the drivers of gold have not changed. He added that the Fed will not raise rates and the government will not address the budget deficit because there are no fundamental factors to change what people think or say about gold in a meaningful way. 

Citigroup’s strategist, Charlie Massy-Collier, said gold prices had run ahead of the debasement narrative, adding that gold’s bullishness is bound to return. However, given the current price levels, he claimed there is no rush to position for that comeback. 

Meanwhile, Bloomberg’s macro strategist Ven Ram believes the slump in gold prices was just an accident waiting to happen. The decline also came as investors weighed potential progress in trade talks between the U.S. and China. The recent resurgence of tension also appears to increase demand for the haven asset.

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