Posted 2nd March 2022

Equities Start to Stem Bleeding But Surging Commodities Raise Inflation Fears

Kinesis Market Analysis by Carlo Alberto De Casa

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.

Gold ($/g) – 15 minutes chart from Kinesis Exchange

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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