Gold Rally on Ukrainian Uncertainty

March 9, 2014

By: Steven Wu

Some investors sought gold as a safe haven after Ukraine appealed for urgent international aid after the fall of Russian-backed president Viktor Yanukovych cast doubt on a bailout deal with Moscow, saying it needed $35 billion over the next two years.

Acting President Oleksander Turchinov warned that Ukraine was close to default and “heading into the abyss.” The precious metal is always seen as a safe haven in times of political and economic turmoil.

Masked gunman took control of parliament buildings in Crimea on Thursday, hoisting Russian flags and sending messages that the region remains unstable just a few days after protestors in Kiev forced Ukraine’s pro-Russian prime minister Viktor Yanukovych out of power. After the Winter Olympic games ended, Russian President Vladimir Putin has stepped up instantly against the removal of Yanukovych. On Wednesday, Putin ordered about 150K Russian military forces near the Ukrainian border to conduct military exercises, prompting a sharp warning from NATO leaders against Russian intervention in Ukraine. Gold immediately reached above the critical $1330 level Thursday morning, despite slightly better than expected employment data in the U.S.

The key issue with that is that we have serious goings on in major emerging markets like the Ukraine and Turkey. Bank operations anywhere in the world right now have to be respected, as does the large number of Russian armor in the Crimean peninsula. More than 7% of all bank deposits in the Ukraine were withdrawn over a two-day period last week.

There is no short-term solution to the situation in the Ukraine, despite the rush by the IMF to offer an aid package that the interim government can’t sign and have any hope of being honored after elections are held in late May. Russia’s response has been simply to shrug at those moves while steadfastly refusing to engage in a war of rhetoric while mobilizing its military to, at a minimum, defend the southern, predominantly Russian, southeastern half of the country.

On the heels of the Ukraine we have the situation continuing to deteriorate in Turkey with opposition calls now for the resignation of Prime Minister Erdogan over corruption charges – similar to that of Ukrainian President Viktor Yanukovich. The Turkish Lira along with the Ukrainian Hyrvnia is in free fall again despite moves by Turkey’s central bank to defend it by raising interest rates back in January.

Although the situation in Ukraine and Turkey helping gold’s rally, there is no massive amounts of buying rather than some Asian demand from China and India. The market will correct sooner or later.

 

 

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