Yesterday I mentioned that the price of Gold was moving above resistance lines and was or about to break out of a range-bound chart pattern.
I still feel that way.
Gold needed a catalyst to get it moving. Inflation wasn’t doing it. Looks like the potential for war between Ukraine and Russia is that catalyst.
Do I believe Russia and Ukraine will actually go to war. While anything is possible, no I don’t think these two countries will go to war. Russia has many tools to disrupt the political hierarchy of the Ukraine that would be literally, less invasive to change the government.
Putin is a master at gamesman ship. I believe he is pulling strings but to what end. Certainly, the most acceptable reason is to prevent Ukraine from joining NATO. In no way does he want a NATO country on his border. Ukraine has always been a buffer between Europe and Russia. Ukraine, however, is not that close to being included in the NATO alliance. The requirements are not easy to meet. It is likely a couple of years at best before Ukraine could join the NATO Alliance.
It is in Putin’s interest, financially to create the illusion that he is going to invade Ukraine. The leading product Russia has to sell is oil and gas. War or the threat of war, pushes commodity prices, especially oil.
Consider recent history. First, he denies Nat. Gas to Germany and Eastern Europe. This drives the price of Nat Gas in parts of Europe, nine times higher than the price of Nat Gas in the United States. This is a reminder to Europe, how important Russia is to Europe. By massing troops on the Ukraine border and acting as if he is ready to invade Ukraine, the price of oil rises to new high prices.
What a change from March of 2020 when the futures price for oil, went negative. Now there is a $130 difference. This is great revenue for Russia, right? Even the USA is a buyer of Russian oil following the current admins anti-fossil fuel policies. Three years ago, the USA was the leading exporter of fossil fuels in the world. A combined Russia and Saudia Arabia flooded the oil market in March of 2020 to bust the fracking industry in the USA. At the same time Covid hit, collapsed the shale industry. The new admin followed up with the anti-fossil fuel policies of the Obama administration. ESG policies discourage bankers and finance companies to lend money or financing energy projects. This slows the recovery of the energy industry. A collision of events and policies happening at the same time. Putin being the ruthless opportunist he is, sees the opportunity to literally profit from the situation and begins war games on the Ukrainian border.
Just for kicks, lets consider what is the other large asset Russia holds? Divorcing the Russian treasury of US treasuries, Putin added gold to the Russian treasury. Should gold break out to higher prices and oil at $95 a barrel, Putin has no incentive to stop playing war games on the Ukrainian border.
So there is no foreseeable reason for Putin to stop his very profitable game.
In conclusion, no I do not expect Russia to invade the Ukraine. As far as the price of Gold and Oil, I see no reason for him to stop his actions either. Therefore, this is not the catalyst I expected for higher Gold prices but I don’t see a clear ending to Putin playing his game either. He is in charge and we are his puppets.
LOTM Research & Consulting Service
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