Risk aversion is back! Gold prices may soar to $3,000 or higher.

As the conflict between Russia and Ukraine escalates, traditional safe-haven sentiment has once again emerged in the market. On Tuesday, the fluctuations in the bond market and the price of gold reflected investors' cautious attitude. However, looking at the market details, traders' reactions may not be as tense as they appear on the surface. On Tuesday, the yield on U.S. 30-year Treasury bonds (TMUBMUSD30Y) dropped by 8 basis points at one point, although there was a rebound later. This magnitude is similar to the technical adjustment volatility in the market on Monday. As is well known, bond prices move inversely to yields, indicating an increase in demand for safe-haven assets in the market, but to a limited extent. Meanwhile, the performance of the U.S. stock market was mixed, with the Dow falling by 0.28%, the S&P 500 rising by 0.4%, and the Nasdaq gaining 1.04%. Will Compernolle, macroeconomic strategist at Chicago's FHN Financial, said: "The market may have a noticeable initial safe-haven reaction, but then gradually return to a wait-and-see mode." The price of gold futures rose by 0.6% on Tuesday, closing at $2,631 per ounce, the highest level since November 8. This increase was driven not only by the geopolitical tension between Russia and Ukraine but also by the uncertainty within the United States, especially investors' speculations about the cabinet picks of president-elect Donald Trump. Peter Grant, vice president and senior metals strategist at Chicago's Zaner Metals, pointed out that if the conflict between Russia and Ukraine further escalates, the price of gold could soar to $3,000 per ounce or even higher. However, as of now, the price of gold is still below the historical high of $2,800.8 set on October 30. Adrian Ash, director of research at BullionVault, said: "The current rise in gold prices continues the market's previous trend, much like the rise in European natural gas and oil prices due to the arrival of winter." Russian President Putin signed a new policy document on nuclear weapon use on Tuesday, lowering the threshold for the use of nuclear weapons. While this move may seem like a further escalation of the situation, it is actually a formal confirmation of a policy proposed in September, and the actual impact may not be as strong as initially perceived. Meanwhile, Ukraine has received support from U.S. President Biden, further exacerbating the geopolitical tension. Compernolle pointed out that there is still a lot of uncertainty about how future conflicts will affect the bond market. "Typically, an escalation of conflict leads to a drop in the stock market and a rise in bond prices, but the specific consequences are difficult to predict in advance." Despite the attractiveness of safe-haven assets in the current situation, the overall market response is relatively restrained. Investors are closely monitoring the latest developments in the Russia-Ukraine situation while waiting for further economic and policy signals.