European Economic Recovery Remains on Track But Ukraine Could Derail Optimism

Macroeconomic Analysis

A new trading week has been greeted by positive private-sector data out of both France and Germany that indicate that the economic recovery is in full swing with lockdowns and other restrictions becoming a thing of the past. 

While this data is encouraging, a large Ukrainian cloud continues to loom threateningly over markets with further reports of shelling in the European country by Russia. French President Emmanuel Macron met with Russian President Vladimir Putin over the weekend and appears to have brokered an agreement for Mr Putin to have a summit with his US counterpart Joe Biden to discuss the seemingly ever-escalating tensions. 

The potential crisis in Ukraine has been on the radar of markets for some time, so to some extent, the geopolitical risk has been priced in. However, the trajectory of a possible conflict looks to be heading in a worryingly worsening direction with the prospect of a military invasion seeming more likely now than at any time in recent weeks.

Clearly, any outbreak of armed conflict would rock markets and quickly turn around the fragile optimism that economic data continues to provide. Today could well bring increased volatility in the markets due to lower volumes with a holiday in the US to mark Presidents’ Day.

Gold Price Analysis

The continued escalation in tensions over Ukraine has proved supportive for gold as investors seek out the haven asset and reduce their exposure to equities in the event of a stock market plunge if military conflict were to break out. 

The price is now challenging the $1,900 an ounce mark, or $61 a gram, levels not seen since June 2021.

So far, the precious metal has met resistance as it tries to successfully clear these psychologically important levels so the next few days will be key in determining whether fears over Ukraine can outweigh the encouraging data on the economic front as well as the likelihood of a series of interest rate hikes this year by central banks with the latter two factors applying the brakes to further gold gains. 

Silver Price Analysis

Silver has slipped back a touch from the highs reached at the end of last week but continues to trade near $24 an ounce.

On a day where more market volatility is likely with the US on holiday, it will be interesting to note if there are any sharp moves on silver with the precious metal much more prone to volatility than its golden peer.

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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.