Macroeconomic Analysis
After Thursday’s sell-off following Russia’s invasion of Ukraine, today has seen modest recoveries, an oft-seen scenario after days as dramatic as yesterday with investors looking to take advantage of cheaper assets. Of course, that view only holds on the assumption that yesterday’s plunge represents the bottom of the market, a bold view given the conflict in Ukraine is very much at its infancy with the full humanitarian, geopolitical and economic ramifications impossible to decipher at this point.
All the news is understandably dominated by the hugely concerning situation in Ukraine and what it means for Ukrainian people, but the release earlier today of French data that showed inflation in the country is at its highest level in over 30 years was an uncomfortable reminder that rising prices remain a real concern for a still-fragile global economic recovery from the pandemic.
While it was hoped that the sharpest inflationary impact would likely be felt in the first quarter of this year before easing as the year went on, the outbreak of war in Ukraine derails that outlook. With oil prices now comfortably above $100, sanctions on Russia reducing its export capacity as well as Ukraine’s role as one of the world’s largest grain producers, the trajectory points only to higher prices yet.
In this geopolitical and macroeconomic context, the response of central banks will be even more keenly followed with questions now being raised whether the hawkish strategy involving a series of interest rate hikes this year remains the best one.
Gold Price Analysis
Gold has been one of the few beneficiaries of the outbreak of armed conflict in Ukraine with the price surging well above $1,900 an ounce to levels not seen since June 2021. Gold has mirrored today’s small bounceback on equities and lost some of those gains but remains at a highly elevated level around that key $1,900 threshold.
With the very real prospect of the situation in Ukraine deteriorating, the case for gold, as the ultimate haven asset that has endured through countless wars over hundreds of years, is very strong.
Indeed a climb up to $2,000 an ounce can’t be ruled out with suddenly all the concerns about gold’s lack of yield against the backdrop of an environment where rising interest rates are forecast is thrown to one side with the primary emotion being fear and concern for what is happening in Ukraine.
Silver Price Analysis
Silver’s price chart mirrors that of gold with yesterday’s sharp spike followed by a sharp decline before recovering again. Silver remains above $24 an ounce and is likely to continue to track gold’s movements, with more gains possible, as while Ukraine dominates everyone’s attention, any other macroeconomic or industrial data will be unlikely to trigger any market reaction.
Palladium is the precious metal most exposed to Russia’s invasion of Ukraine with Russia the largest producer of palladium so the likelihood of ever-stricter sanctions on Russia and Russian companies raises the prospect of a supply shortage boosting prices.
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Rupert is a Market Analyst for Kinesis Money, responsible for updating the community with insights and analysis on the gold and silver markets. He brings with him a breadth of experience in writing about energy and commodities having worked as an oil markets reporter and then precious metals reporter during the seven years he worked at Bloomberg News.
As well as market analysis, Rupert writes longer-form thought leadership pieces on topics ranging from carbon markets, the growth of renewable energy and the challenges of avoiding greenwash while investing sustainably.
