LAWRIE WILLIAMS: Ramifications for gold and silver of the latest Russian attack.
Well it looks like we were wrong about Russia’s likelihood of instigating an invasion of Ukraine, although whether military action to date can be classified as full-scale or not is probably dependent on the viewpoint of the parties involved. As is usual in such cases, news is somewhat mixed so far. Certainly there are now Russian regular army units on the ground inside the officially-recognised borders of Ukraine and debilitating attacks have been launched on key Ukrainian military establishments, but the Russian aggression so far appears to have been mostly limited in terms of territorial advance in favour of long distance remote attacks on Ukraine military infrastructure. However a number of major cities – including the Ukrainian capital Kyiv and the port cities of Odessa and Mariupol – are thought to be initial primary strategic targets.
Whether this will remain so in the days and perhaps weeks ahead remains to be seen. Obviously one can no longer take any assurances by President Putin at face value, but the very logistics of taking over full control of Ukraine, one of the largest nations in Europe in terms of area, and its people, remains a daunting task and a road President Putin may not wish to travel.
One suspects that what Russia will be aiming for are binding concessions from Ukraine that it will drop any aspirations of joining NATO and will agree to recognise the so-called independent regions of Donetsk and Luhansk, although these two areas are not fully under separatist control. Ukraine may also be forced to recognise officially that the Crimea and the port of Sevastopol are now an integral part of Russia. One suspects that Ukraine will ultimately be forced to acquiesce to these demands with most Ukrainian cities well within range of Russian missile attacks if they resist these demands.
Gold and silver moved up in price strongly initially in Europe despite the U.S. dollar rising very sharply too. Precious metals prices came back down since in U.S. markets after an initial surge and gold and silver have both probably set new bases – gold at around $1,900 and silver at $24. Global equities and cryptocurrencies again were initially marked down strongly with U.S. stock indexes falling to around levels last seen almost a year ago, but have since recovered some of their lost ground. Markets are thus fluid and probably need more time to settle down to a new normal.
Opinion on the Putin moves remains divided in the U.S., if not in Europe, with President Biden denouncing the Russian actions in strong terms, but former President Trump reportedly seeming to see the Russian move as a masterstroke of political acumen.
The latest Russian move will undoubtedly invoke the imposition of stringent economic sanctions imposed by the U.S. and Europe, but these well-forecast moves seem unlikely to worry President Putin unduly. Russia has been the subject of quite severe sanctions in the past without seemingly suffering too much in the way of domestic economic consequences and, no doubt, President Putin feels that even a more drastic extension of these sanctions is survivable economically, particularly with the support of its southeastern neighbour in China which has the capacity of providing a market for most Russian products – notably oil and gas – which may be the prime target of western sanctions.
The effects of these imposed sanctions may well prove to be even more devastating for some of Russia’s European neighbours, particularly as they are so reliant on Russian oil and gas exports, as is Ukraine itself. This raises the question of some less supportive endorsement of sanctions by more severely affected European nations. The U.S., of course, is largely insulated by its own massive internal markets and resource independence from any ulterior effects of its sanction impositions.
Gold, in particular, tends to be a beneficiary of global geopolitical unrest and its price certainly was initially marked up very substantially as the threat, and now the actuality, of a Russian invasion of Ukraine, grew. It has also been buoyed up by global inflation which is likely to be exacerbated by the Russia/Ukraine hostilities.
As inflation moves higher, central bank attempts to bring it under control may well become more severe bringing the threat of global recession ever closer suggesting equity prices are in for a fairly torrid time. In the longer term this should benefit investment into gold and silver, although as we have warned before they could be affected in the short term by the need of some funds and institutions to maintain liquidity.
Of course were the conflict to spread to other European nations, drawing in NATO, then the recent price volatility we have been seeing in precious metals and equities could be just a drop in the ocean. Let’s hope and pray it can be contained and doesn’t come to that!