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.
Yet despite the very real prospect of armed conflict, global indices are generally showing gains this morning. With the situation in Ukraine being on investors’ radar for much of this year, one take could be that the economic impact has already been priced in with today’s gains representing a small recovery from the plunge at the end of last week and the start of this one.
Equally, given Russia’s importance to the energy sector, it is no surprise to see gas and oil trading at hugely elevated levels, including Brent crude nearing $100 a barrel, with the threat of sanctions being imposed on Russian companies in response to the nation’s aggression over Ukraine.
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.
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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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.
