Gold Closes Above $1900 as the Geopolitical Tensions Escalate

As of 4:25 PM EST gold futures basis, the most active April 2022 Comex contract is currently fixed at $1910.70 after factoring in today’s gain of $3.30 or 0.17%. Gold futures opened at $1901.20 today, traded to a high of $1912.90 and a low of $1891.10. Gold did not break yesterday’s high of $1918.30; however, on a closing basis, gold futures have not closed at this level since January 2021. The recent daily highs have now matched the highs achieved in June 202, the last time gold rallied solidly above $1900 as it traded to an intraday high of $1918.50.

Russia’s recent action as they moved troops into the Donbas regions of Ukraine has escalated tensions to a “crisis” status setting off a chain of events. For the last two days, the United States has begun to initiate strong sanctions against Russia for the recent action in conjunction with European NATO countries.

The question remains what is the ultimate intent of Vladimir Putin as he is now moved some of Russia’s 150,000 troops past the border into regions of Ukraine that Pro-Russian separatists have controlled. Effectively Russia has controlled this region for approximately eight years. Recent statements by Russia’s president have elevated tensions as Putin announced that Russia proclaimed these regions as independent from Ukraine.

The greatest unknown is whether or not Russia will initiate a full-scale invasion into Ukraine, a sovereign country, for the last 20 years? Ukraine is set to introduce a state of emergency across all parts of the country under government control. The United States has issued a warning to the Ukrainian government informing them that their latest intelligence suggests a launch of a full-scale invasion is “imminent.”

NATO and the United States have acted in a unified front, initiating a series of sanctions yesterday and today, including today’s move to play sanctions on the Russian company building the “Nord Stream 2” gas pipeline into Germany. President Biden wrote a statement which said, “Today, I have directed my administration to impose sanctions on Nord Stream 2 AG and its corporate officers. These steps are another piece of our initial tranche of sanctions in response to Russia’s actions in Ukraine. As I have made clear, we will not hesitate to take further steps if Russia continues to escalate,”

Crude oil prices have been spiraling higher with light crude oil futures trading to their highest level since 2014. Currently, crude oil futures are fixed at $92.29 and traded to a high today of $93.90 per barrel. This will certainly impact inflationary pressures as crude oil and gasoline have been primary forces taking the inflation level higher.

This combination of an escalation in geopolitical tensions as Russia moved troops into the sovereign nation of Ukraine and the high likelihood that inflationary pressures will continue to rise has been highly supportive of gold pricing.

On a technical basis, there remains resistance at approximately $1920. However, any real strong retracement below $1870 seems unlikely given the current inflationary concerns and escalation of Russia’s actions in Eastern Ukraine. If the recent action by Vladimir Putin is simply to strengthen his position on Ukraine, not joining the NATO alliance, and talks yield de-escalation, we could see gold move lower.

That being said, if Russia initiates a full-blown invasion past Ukrainian territories that have long been recognized as under Pro-Russian separatist control, those escalated actions could lead to a continuation of rising prices in gold. This could lead to gold breaking above $1920 per ounce, which would be a true technical upside break-out.

Wishing you as always good trading and good health,

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Gary S. Wagner