Gold seems to be entering perfect storm territory this morning as Russian forces enter disputed areas of Ukraine and NATO waits to see if Putin will follow through and send troops into a potential bloody conflict in Ukraine proper. Dow Jones futures were forecasting a big sell off in US equities when American markets open later today.
Gold seems to be a major area of focus for traders this week, having been relatively moribund during the pandemic. Gold spot has been toying with the $1900 level although was slightly off that this morning (Tuesday). Heavy buying in the US time zone was followed by range-bound activity in gold trading overnight at around the $1912 level before gold dropped off to trade at about the $1895 level.
Gold, oil and NASDAQ are focal points in market
Last week, gold was the most traded instrument on CFD broker Capital.com, taking the number one spot from the NASDAQ index, which had been the most popular market on the platform since mid-January.
“Given the geo-political backdrop over the last week, it is perhaps not too surprising that oil, the NASDAQ index and gold have proven to be the most-traded markets by our clients,” said David Jones, Chief Market Strategist at Capital.com. “These markets all had quite different weeks, and have appealed for different reasons.”
After European markets had closed Friday 11 February, the US President seemed to suggest that a Russian invasion of Ukraine was imminent. This saw the US crude oil price jump by $2.50 in under half an hour. Once again, oil was setting fresh 7-year highs but this time around it wasn’t due to ongoing economic recovery, but the threat of war.
Over recent days there have been various murmurings of some sort of diplomatic solution to the situation in Ukraine – and this may have caused oil to back off. But it looks like gold traders may not be quite as ready to believe the worst may be behind us. After a disappointing 2021, where the yellow metal lost around 3%, this year has been something of a “perfect storm” for the gold bugs.
Other factors supporting the gold price
The gold price is being driven by more than Ukraine however: investors are also concerned about higher inflation numbers, and uncertainty in the stock market.
“The historically renowned classic safe haven destination has been doing its thing and so far gold has risen by five percent in February,” said Jones. “It is a solid performance and put the gold price back to where it was last summer.”
But $1,900 is something of a proverbial line in the sand for gold strength. It will be interesting to watch the gold price week, to see if this may prove to be a barrier to any further upwards progress. Here at The Armchair Trader we think a further move by Russia into Ukraine will be enough to take gold above $2000.
Other commodity markets on the move this week include Brent crude oil futures, also trading a notch above $95 a barrel on Tuesday morning, again boosted largely by Russian military activity. Natural gas futures on NYMEX are also in recovery mode, having dropped off a cliff earlier this month. April 2022 gas futures are touching the $4.75 level and we would anticipate they will go higher in today’s US session.
