Positive Sales Figures Provide Boost But Threat of Ukrainian War Leaves Confidence Fragile

Macroeconomic Analysis

The trading week looks set to end on a positive note after UK retail sales figures followed the US in posting better than expected numbers. However, this nascent optimism could be brought to a swift halt by further escalations in Ukraine with reports emerging of shelling and other violations of the ceasefire.

Rather than looking at today’s small gains, the weekly moves provide a better reflection of the overall market sentiment with the UK’s FTSE-100 set for a weekly decline of 1.5%, which would be its largest in almost three months. 

The dominant themes remain inflation and Ukraine with the minutes from the Federal Open Market Committee earlier in the week, effectively confirming a rate hike in March with Jerome Powell adding that the central bank will raise rates further if inflation persists.

By now, interest rate rises have been priced into markets so it will now take an unexpectedly steep rise or a cancelled increase to provide fresh impetus on the trading direction. 

On the Ukrainian front, US President Joe Biden will host a call with NATO allies to discuss the buildup of Russian troops on the Ukrainian border.

So far, NATO has been focused on using stern rhetoric to dissuade Russia but the longer this goes on the weaker and emptier sounding it starts to become.

Gold Price Analysis

The escalation in military aggression in Ukraine has seen a flight to gold with the price now challenging $1,900 an ounce and trading at levels not seen since June 2021.

The fact these gains have come in a week in which the Federal Reserve has plotted out its likely interest rate hike trajectory highlights that fear is the dominant emotion among many investors. 

It will be interesting to see the price reaction if gold does break through the $1,900 ceiling as for much of the last few months, the precious metal has failed to make significant gains despite a falling stock market. The real threat of war breaking out in Ukraine seems to have finally given gold the push it needed.

Silver Price Analysis

Silver has hung on to the coattails of gold and been pulled up above $24 an ounce with investors also seeking the metal for its haven qualities. In theory, the market conditions are ripe for silver to rally with fears over the war in Ukraine supporting haven assets while economic data that suggests the economic recovery is underway would play into silver’s industrial demand. 

Silver is much more volatile than its golden brother and having climbed above $24 an ounce, it could quickly shoot up towards $25 and start to challenge the highs seen in November.

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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.