Macroeconomic Analysis
The bleeding on equities as a result of war breaking out in Ukraine has continued into Wednesday, albeit at lower levels than the dramatic plunges earlier in the week.
While equities decline, commodities continue to climb as the world faces the prospect of considerably lower supplies of a whole host of metals and grains given the importance of Russia, and to a lesser extent Ukraine, in producing these commodities.
Oil, in particular, is surging with the price breaking through $110 a barrel to levels not seen since July 2014, prompting the US to announce a coordinated release of 60 million barrels of strategic supplies. The Organization of Petroleum Exporting Countries (OPEC) meets today to discuss its own response but isn’t expected to change tack from the supply levels agreed by the broader OPEC+ group, which includes Russia.
The impact of these surging energy and commodity prices will be increased inflation with the EU publishing its flash estimate for February this morning. Given it is already at a record high of 5.1%, the likelihood of a new record will further add to pressure from European central banks to respond by raising interest rates.
However, Russia’s invasion severely complicates the picture, leaving these banks stuck between a rock and a hard place in how best to tackle rising prices while not piling more economic uncertainty at these already troubled times.
Gold Price Analysis
Gold has seen a huge rush of support for the metal, with a dramatic increase in trading volumes, as investors flee to the ultimate safe haven asset at a time of geopolitical crisis. This upswing in buying activity pushed the price of gold well above $1,900 an ounce to levels not seen for 14 months. However, Wednesday has seen a slight pullback with the sell-off on equities showing signs of slowing.
It is worth noting that despite the huge demand for gold and resultant large price gain, the sheer size of the gold market means that the precious metal hasn’t yet entered into overbought territory according to RSI indicators.
This suggests that there is more upside potential for gold with $2,000 an ounce still possible but it will need to strike while the metal is hot with bearish factors such as central banks’ raising rates to tackle inflation as well as the prospect of the Russian central bank selling off its gold to stave a currency crisis looming on the horizon.
Silver Price Analysis
Silver has also enjoyed healthy gains, with the price trading well above $25 an ounce. However, like gold, the price has dropped back slightly from the highs seen on Tuesday.
While silver did manage to climb above the $25.40 level that represented a notable resistance level, it only achieved $25.60 before falling back. This suggests that this is silver’s current natural ceiling with a few attempts over recent months to climb have fallen down around this level.
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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.
