LAWRIE WILLIAMS: Ukraine war second phase and impact on gold
Russia’s invasion of Ukraine seems to be taking a new twist, but whether this suggests a de-escalation, or perhaps may presage a renewal of Russia’s efforts to take total control of Ukraine’s Donbass region and its Black Sea coastline remains to be seen. Certainly the latest reports suggest a complete withdrawal of Russian troops from the areas around Kyiv and Chernihiv in the north of the country – perhaps due to ‘significant’ losses at the hands of Ukraine’s defence force, which Russia now seems to be admitting in a new statement from Kremlin spokesman Dmitri Peskov. Ukraine claims its forces have killed over 18,000 Russian soldiers and destroyed or captured a large amount of military equipment. Russia puts casualties far lower in its domestic news, but one suspects the true figure is somewhere between – probably around 10,000 Russian fatalities.
Russia claims the withdrawal is because its objectives have been achieved. However Western military opinion suggests that this was a response to the heavy loss of life and equipment and the total failure of the Russian forces invading from Belarus to quickly take Kyiv and depose the elected government.
It does appear though that Russia will now focus its assault on the Donbass region and the parts of the Black Sea and Sea of Azov coastline it does not yet fully control. It also does not appear to have withdrawn from the area around Ukraine’s second largest city of Kharkiv. It does appear to be concentrating, therefore, on areas directly bordering Russia which do not cause it the logistical and re-supply problems that faced its forces attacking from Belarus. However it will also enable the Ukraine army to redeploy some of its forces into these areas, although it will have to leave sufficient forces in place in the north to protect against a renewed Russian advance and perhaps try to retake areas around Kharkiv.
One thing which is unlikely to change is Western economic pressure on Russia in the form of sanctions, particularly if Europe manages to reduce its dependence on Russian oil and gas thereby further increasing sanctions effectiveness. Given the apparent atrocities which appear to have been inflicted by Russian troops on previously occupied areas and the devastation wreaked on Mariopol, anti-Russian economic moves may well be further increased. Mariopol is in a predominantly Russian speaking area of Ukraine supposedly being ‘liberated’ by the Russian forces. Instead the city has been totally devastated with a slaughter of civilians, Russian speakers included, seemingly unparalleled elsewhere. Western attitudes towards the Russian state will thus likely be hardened and sanctions extended and probably prolonged.
All this, of course, will as we have often noted in previous articles, increase inflationary pressures globally, as well as in Russia itself. There is a price everyone must pay for the support of the Ukrainian nation and this is coming at a time when inflation is already running high as the world tries to extricate itself from the effects of the Covid-19 pandemic. Russia and Ukraine in combination are major global foodstuff exporters and Russia a top exporter of oil, natural gas and many precious and base metals. Sanctions will have an inflationary price impact on all of these as nations imposing the sanctions – i.e. much of the so-called developed world – will have to seek replacements from assumed friendlier areas almost certainly at a higher cost.
Global inflationary trends will drive some nations into recession and/or a period of stagflation – both of which tend to be positive for gold as a reliable wealth protector. While we don’t necessarily anticipate gold price fireworks we do anticipate a slow and steady rise for some time to come – perhaps lasting for several years. In any case we expect gold price strength, with maybe the occasional setback, until the Ukraine war is a distant memory.