The war in Ukraine has had a profound effect on global markets. Yesterday’s full-on assault by Russian troops opened the door to further sanctions, West aggression, and other issues that could complicate the situation further. Markets are singing a very different tune today, however, as it appears that Russia may be open to dialog. After hitting a 1.5 year high yesterday, the yellow metal then proceeded to give back all of the day’s gains and then some. It is being sold off, even more, today, with spot prices currently down some $18 per ounce. The metal is now firmly below the $1900 level in what may be viewed as a major blow to the bulls. The metal could potentially see a decline back to the $1850 zone before finding some solid buyers.
Although the conflict remains highly fluid, rumor of Russian willingness to negotiate, primarily with China, is giving markets some breathing room today. The Dow Jones Industrial Average is higher by nearly 600 points in mid-morning action and the S&P 500 and Nasdaq are also sharply higher. Of course, whether these markets will retain such gains going into the weekend is another question entirely. Market anxiety is way down from early yesterday, however, and lower levels of anxiety may give investors reason to buy the dip.
President Biden has made clear he has no intention of sending American troops into the conflict. Western economies appear content, in fact, to sit and watch the conflict unfold as it may. A mistake by Russia, NATO or others could, however, change the dynamics quickly and is a major risk as the war gets going.
Several markets that had overreacted yesterday have seen large retracements already. These include stocks, gold, treasuries and grains. The Russian stock market at one point Thursday saw half of its value erased before rebounding. With the Russian currency, the ruble, getting hammered, some fear that Putin may be forced to sell a large quantity of the nation’s gold to support it. Time will tell how the conflict affects markets, but rising volatility is likely to be seen and major price swings are increasingly likely until the war is concluded.
Gold prices are still trending higher on the daily timeframe, although the bulls appear to be a bit tired at this point. A period of consolidation may now be necessary before the bulls can take prices higher in a sustainable manner. The bulls’ next target is to produce a close above yesterday’s highs in the $1976 area. The bears, on the other hand, will look for a decline below support at $1850 and then $1800. A close above or below these levels may add needed momentum for either the bulls or bears to continue moving the market. In the meantime, the gold market is likely to take its cues from the ongoing conflict and the data stream. The Fed, which will almost certainly hike rates next month, could also play a role in gold’s price action if it signals any possible changes to policy or its plans regarding policy.