The War Watch Continues
The gold market is trading slightly higher around lunchtime Tuesday as things heat up further between Russia and Ukraine. Gold traded up to an eight-month high today as risk aversion has again set in and as investors seek out perceived safe-havens. Constructive charts combined with the geopolitical scene are making it easy for investors to buy gold. Positive momentum could carry the metal higher as it faces an important test of technical resistance.
Investors and traders returned from a long holiday weekend to see that Russia is now putting troops into breakaway parts of Ukraine. Russia has called the move a peacekeeping mission, although that description has left the U.S. and its allies scratching their heads. The U.S. and its allies have already initiated sanctions against Russia. Germany has halted certification of a major oil pipeline into Russia, yet Russia appears to be intent on invading Ukraine. According to the U.S. Russia now has nearly 200,000 troops stationed along the Ukraine border. It is difficult to imagine a reason for such a buildup that does not include an invasion of Ukraine by Russian forces.
The rising Russian/Ukraine tensions are having an effect on global markets. Crude oil prices shot higher overnight, hitting a 7.5-year high of $96 per barrel. The stock markets are also being hit today. The benchmark Dow Jones Industrial Average is down nearly 600 points in the early afternoon. With a couple of hours left in the trading day, volatility and selling could take over and fuel a massive down day for equities that could lead to declines of several percentage points. The dollar is steady at mid-day, while yields on the Ten-Year Note are currently fetching some 1.925%. Yields have declined from recent highs over the 2% level as safe haven buying has lifted demand.
The gold market has backed off from overnight highs. Given the metal’s demand from buyers looking for safe havens, it is not surprising that it is off of overnight highs. Some traders and investors likely decided to take a quick profit. There is almost certainly a significant amount of risk premium built into the price of gold currently, and if tensions start to calm the market could see a sharp pullback.
The bulls remain in firm control of the market on the daily chart and a steep uptrend is in place. The bulls next target is producing a close above the May 2021 highs near $1923 per ounce. If this level is cleared, the market could really pick up significant steam and could possibly rocket higher to $2000 or beyond in short order. The bears, on the other hand, will still target a close below the $1800 level as a starter with the $1780 area next. Although the metal is still in no man’s land, it does appear to be inching higher and the bulls may have the advantage in the weeks and months ahead.