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Julianne Geiger

Julianne Geiger

Julianne Geiger is a veteran editor, writer and researcher for Oilprice.com, and a member of the Creative Professionals Networking Group.

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Gold Is Walking A Tightrope As Equities Rise

  • Gold has gained about $144 per ounce in the last 30 days.
  • Conflict in Ukraine has only led to a small rally in gold.
  • The Fed on Thursday eased market fears a bit, leaving gold flat, when Fed chair Jerome Powell said interest rates would only be raised by 25 basis points in March.

Gold is once again hoping to prove itself the key hedge against instability, with a Russian war on Ukraine running into its eighth day and Western sanctions crippling Moscow, but so far, "flat" is the safe-haven word of the day. 

Gold has gained about $144 per ounce in the last 30 days, and in theory, this is the perfect situation for it to soar. That hasn't happened yet, despite Barrick Gold CEO Mark Bristow's insistence that the threat of the Russian-Ukraine war could lead to a market collapse. 

"If you look at this crisis, there's a whole lot of potential of unintended consequences. We've got very hot markets, and we are now going to really stress the global economy out. Everyone's going to be impacted. If this goes on for much longer…the threat of that is it could collapse the market," Bristow told Kitco

We've been enjoying the longest-running bull run in history, and plenty have been calling its end well before Russia invaded Ukraine. 

But at least as of Wednesday, the market disagreed, returning to the rally, with stocks and Treasury yields rising despite oil's exorbitant climb to its highest prices in over ten years. 

Yes, a geopolitical upset on the scale of NATO countries shoring up their defenses in preparation for a Russian push beyond Ukraine is exactly the kind of event that can turn a bull run into a bear run, at best, and sanctions will bite everyone.  

By Monday, Russia was reeling under sanctions, with the Central Bank more than doubling its key interest rate from 9.5% to 20%. The Russian ruble has lost around 30% of its value. On Wednesday, it plunged to a record low of 110 to the dollar in Moscow, and just shy of 100 on other trading platforms, according to Reuters.

Related: U.S. Wants To “Degrade” Russia As Oil, Gas Power

But back at home, the Fed on Thursday eased market fears a bit, leaving gold flat, when Fed chair Jerome Powell said interest rates would only be raised by 25 basis points in March instead of what some feared would be double that. He also boosted markets by saying that inflation is expected to be moderate for the remainder of the year, keeping in mind that it's already at its highest level in four decades.  

While gold typically loves it when the Fed plans to raise interest rates, the Fed proved to be less aggressive, taking some of the shine out of gold. 

Gold was stuck in a range between $1,924 and $1,933 on Thursday, waiting to see what peace talks between Russia and Ukraine might deliver, with many taking the view that Putin might agree to a ceasefire amid an economic disaster at home, and as the Ukrainians–who are getting new Western weapons every day–continue to hold strong. 

Gold
Source: Kitco

With the U.S. dollar still showing strength, investors aren't pouring into gold as a safe haven–yet.

Gold has been languishing for years now, and even a high-level conflict that threatens all of Europe, and potentially a World War III scenario hasn't yet managed to lift it out of its price purgatory. 

That could change, as Bristow suggests, but for now, too many other things are working against it, even if we are building up to a "war premium". 

For now, oil and gas are stealing the show, with City Index senior market analyst Matt Simpson saying the oil trend is "now in a parabolic stage – which rarely end[s] well and usually complete with what is known as a 'blow-off top'. But there is no way of knowing if we are close to any sort of top with the geopolitical landscape. And trying to nail a market top with such strong bullish momentum is akin to trying to catch a falling knife."

Russia-Ukraine peace talks are due to be held later on Thursday, and that's what gold bulls will be eyeing for indications as to whether the precious metal will remain tied to its current range. 

As of late Wednesday, no major Ukrainian city has fallen to the Russians, though the tactic may be to bombard cities with massive shelling before attempting to take them, RFE/RL reports.  

Still, a number of analysts believe that Putin has already lost this war, though predictions of how an increasingly unhinged autocrat will behave once launching an extremely risky invasion that is damaging at home, as well, is tricky. 

Keep your eye on precious metals right now, which will follow the path to a war premium or lose momentum in peace. 

By Julianne Geiger for Oilprice.com

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  • Henry Hewitt on March 04 2022 said:
    Thanks Tom. Don't be surprised if he's right. Twice before in the last century, 1934 when FDR devalued the dollar by pegging it to $35 per ounce, up from 20 and change, and then again in 1980 when the Hunt boys lost their shirt trying to corner Silver (didn't work any better in 1869, but who remembers such things?) and Gold got to $800 -- that was when the Shah got kicked out of Iran and the American embassy was sacked -- Gold and the Dow reached parity. No kidding. From around 18 to 1 in 1929 (381 Dow v 20 or so Gold) to parity in just a few sickening years. In 1966 when the Dow got to 1050, which was a long way back from 42 or so when American voters sent the Republicans to the penalty box for 50 years (was that long enough?), Gold was still 35, so that was about 30 to 1. Now we have a roughly 18 to 1 ratio again. Don't be surprised if they meet somewhere around 7500. I would have thought 6400 was appropriate, after all that is where Greenspan told us "Irrational Exuberance" had taken hold. I wonder what he thinks about Tesla? "We few, we happy few, we band of brothers . . . Be he ne'er so vile this trade will gentle his condition. And gentlemen in T-Bills now instead will think themselves accursed they were not here while's any speaks who bought with us upon Saint Greenspan's Day." One final note: From 20 to 1929 is a move of 95x. From 381 on the Dow to 33,000 is only 80x. Shares are lagging though I'll grant you the dividend flow, probably around 3% on average since that time, has made the difference, if you didn't lose money on the trades and you didn't have to pay any taxes.

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