Posted 23rd February 2022

Ukraine on the Brink of War with Russia Yet Markets Gain on Oversold Concerns

gold silver market analysis

Macroeconomic Analysis

All the focus is on Ukraine today where an invasion by Russian troops now seems inevitable. As recently as the weekend when French President Emmanuel Macron appeared to have brokered a meeting between the US and Russian Presidents, Joe Biden and Vladimir Putin, there remained hope that dialogue could avert a conflict but the rapid developments over the last 24 hours have smothered those remaining strands of optimism.

Today perhaps represents a reverse of the old adage with investors having sold off on rumours of Russian invasion and are now buying the fact on the understanding that conflict in Ukraine is a grave geopolitical crisis rather than an economic one. However, this would be a bold step to take given the fragile and still relatively nascent nature of the economic recovery from the coronavirus pandemic.

Gold Price Analysis

Gold’s price reaction today reflects the confused state of mind on markets with the impending armed conflict between Russia and Ukraine resulting in gains on equities and gold, the time-honoured safe-haven asset at times of crisis and war, slipping back.

kinesis gold chart exchange
Gold ($/g) chart from Kinesis Exchange – 15 minutes – Gold finds resistance at the $1,900 per oz threshold

While today’s unusual market reaction perhaps reflects a feeling that the previous sell-off was overdone, it is interesting to note that gold’s pullback has come as it neared $1,900 an ounce, highlighting the amount of resistance at this psychologically important threshold.

Another consideration is that while gold is an established haven asset, it is also a non-yield bearing one, and while the current focus is understandably on Ukraine, the wider economic outlook points to one in which interest rates will be hiked throughout the year, providing a brake on how far gold can climb.

Silver and Palladium Price Analysis

Silver has found support from haven-seeking investors and climbed above $24 an ounce but gold’s gains prior today have been sharper, suggesting that there may be further gains available for silver with the gold/silver ratio pushing out above 75. 

While gold and silver typically dominate investor interest in the precious metal sphere, the metal to watch currently is palladium given Russia’s dominant position in the metal’s production. Palladium has already enjoyed a strong start to the year but with sanctions likely to be imposed on Russian producers, supply could become constrained and offer up further scope for renewed gains. 

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