The gold market is sharply higher at lunchtime Tuesday as keener risk aversion and anxiety continue to plague markets. The gold bulls have overtaken key resistance on a closing basis today, as prices have run right through the $1923 level like a knife through warm butter. The question now becomes whether the bulls can make a sustainable move higher or if prices deflate quickly on an easing of tensions. Such a calling of tensions does not appear to be in the cards anytime soon, however, as the Ukraine/Russian conflict seems to be deteriorating by the day.
The 1.5 year high seen in gold today may be met with some degree of skepticism. The yellow metal likely has at least $20 per ounce of risk premium built into prices currently, if not $40 or even more. Any signals for an easing of the war in Ukraine could be met with heavy selling as longs liquidate positions. Of course, the market may also be higher due to other reasons such as inflation. Those reasons have seemingly taken a back seat to the war, however, and the armed conflict is likely the primary driver of gold right now.
Ukraine, to its credit, has put up much heavier resistance to the Russian invasion than some had anticipated. The heavier resistance against Russian forces has likely caught President Putin off-guard, and the crippling sanctions slapped against the Russian economy are also being felt. With Putin seemingly on edge, markets now wonder what his next moves could look like. If Russians become even more turned off by the conflict, is a military coup attempt possible? Could Putin turn to his nuclear arsenal? Would he strike Western countries? These are all questions being asked already. The answers to such questions may remain unknown for quite some time still, and that may keep markets on edge for a long period of time.
Crude oil is having a strong run higher today, with the latest price for a barrel of oil at over $106. The dollar is also stronger today while treasury yields have declined. This market action is indicative of the angst currently within the marketplace and shows the fear currently being felt by investors. The potential for an oil shock, for example, is very real and a legitimate risk. A sudden and sharp drop in crude supplies could put the world economy onto very thin ice. The higher crude price is also feeding the inflation narrative at a very poor time.
The gold bulls remain in firm control on the daily timeframe. The uptrend in place has been established over several weeks now and the bulls will likely target the February highs around $1976 as their next stop. The bears will look for a decline on a closing basis below the $1850 level to gain momentum. If the bills are able to produce a close above last month’s high, the stage could be set for a quick and significant run higher that could see prices extend all the way towards previous all-time highs.