The One-two Punch of Inflation and Russia-Ukraine Tensions Move Gold Above $1900

On January 31 gold opened at approximately $1792. Gold has gained value during 12 of the last 14 trading days. Gold has increased its value by 6.02% since January 31. If this trend continues it will be a180° reversal from the price decline that occurred in 2021. Although inflationary pressures increased during 2021 gold prices did not. Gold futures lost roughly 4.7% last year. This was the steepest yearly decline since 2015.

It was rising levels of inflation that became the underlying force moving gold higher this year. With inflationary levels at a 40-year high and no quick solution to curtail inflation from moving higher, it will likely continue to have a major impact on gold taking the precious yellow metal higher throughout the year. Add to that the recent geopolitical tensions between Russia and Ukraine and collectively you have a powerful one-two punch that could cause gold prices to retest the record high that occurred in August 2020 when gold prices reached an apex at $2088 per ounce.

The technical studies we have presented to our subscribers and readers of our daily article in Kitco media forecast that a retest of the record high is probable. However, it is the unique set of fundamental factors which have been driving gold higher that could continue for a sustained time. Although the recent surge has been directly attributable to rising tensions between Russia and Ukraine there is intrinsic uncertainty as to how this current conflict will unfold.

But there is one certainty and that is as long as tension continues to grow the probability of a peaceful resolution will diminish. While all sides are hoping for a diplomatic solution currently it has become a war of words and accusations between Russia, Ukraine, NATO, and the United States. The most recent war of words increasing tension occurred yesterday with Western officials accusing Russia of not being truthful as it pertains to their statement that they have begun to pull back troops from the Ukrainian border.

United States officials directly accused Russia of lying citing the lack of evidence confirming Russia’s statement. Concurrently they presented evidence that Moscow added 7000 troops which they inferred was evidence that Russia was mobilizing for war. British officials reported that they had intelligence that Russia had moved armored vehicles, helicopters, and a field hospital closer to the border of Ukraine.

With no concrete certainty that the geopolitical tensions in Eastern Europe will subside peacefully through diplomacy, there remains the certainty that current inflationary pressures have not peaked and most likely will continue to rise.

The release of the producer price index last week confirmed that inflation continues to spiral out of control. Increases in wholesale prices are a precursor to increases in retail pricing as corporations producing goods and services will at some point pass on their higher costs to the consumer.

The current geopolitical environment and economic environment present unique challenges that will be difficult at best to resolve in any reasonable amount of time which is why the probability of gold retesting the record high continues to be real and probable.

Wishing you as always good trading and good health,

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Gary S. Wagner