Ukraine – Russia Conflict and Inflationary Levels Continue to Move Gold to Higher Ground

Inflation continues to run hot, with the continuity of recent reports which indicate that the level of inflation continues to spiral to higher ground. The geopolitical tensions between Russia and Ukraine continue to grow. Today the United States indicated that Russia continues its troop buildup on the borders of Ukraine.

As of 4:50 PM EST gold futures basis, the most active April 2022 contract is fixed at $1870.70, after factoring in today’s net gain of $14.40 or 0.78%. Spot-Forex gold has also shown significant gains today of $15.60 or 0.85% and is fixed at $1868.30. Silver futures basis the most active March contract, had respectable gains of 1.34% or $0.233 and is currently fixed at $23.57.

Dollar weakness did provide modest tailwinds. Currently, the dollar index is down by 0.19% and fixed at 95.815. Weakness in the U.S. dollar today has been attributed to the release of the minutes from the last FOMC meeting, which showed little change from the last statement and press conference. However, because the minutes did not contain a more hawkish tone than the statement, the minutes have been interpreted as a more dovish Federal Reserve.

Inflationary Pressures Spiral Higher

Most recently was the PPI (Producer Price Index) report released yesterday by the Bureau of Labor Statistics. The report revealed that wholesale prices had increased 1% by January, taking the year over year to an increase of 9.7%. The importance of this report cannot be understated because an increase in costs to corporations producing goods and services will at some point be reflected in higher prices on a retail level.

Last week on Thursday, February 10, the government released its CPI-U (Consumer Price Index) for January 2022. The report indicated that the current level of annual inflation has risen to 7.5%. This level of inflation marks the largest single-month gain since February 1982. Both the CPI index and core inflation rate rose to levels above economists’ expectations.

The next report for the PCE (the preferred inflation index used by the Federal Reserve) will be released on February 25. However, the December numbers were released on January 28 and also indicated a tremendous surge in inflationary pressures. The PCE price index reflects changes in the price of goods and services purchased by consumers in the United States but strips out key elements such as the cost of energy and food. That being said, the level of inflation vis-à-vis the PCE for December 2021 is currently fixed at 5.8%.

The Russian-Ukraine Front

Yesterday was the first time since the onset of the buildup of Russian troops on Ukraine’s borders that there appeared to be the possibility that this crisis would de-escalate. This was based on statements by Vladimir Putin saying that they are moving troops away from the border. However, the belief that the geopolitical crisis was de-escalating could be short-lived. According to the New York Times, “Russia said it was continuing to pull troops back from near Ukraine, but Secretary of State Antony Blinken and the head of NATO said they had seen no indication of a withdrawal.

Still, Western officials were cautiously hopeful for a diplomatic solution to the crisis.” Both NATO, as well as the United States, have acknowledged that they have no concrete evidence that a Russian pullback has transpired. Statements by the U.S. and NATO are in contrast to statements by the Russian defense minister who not only announced more troop withdrawals but released a video that showed a train loaded with armored vehicles crossing into mainland Russia from Crimea.

It seems clear that the major fundamental events which have moved gold to its current eight-month high remain firmly embedded in both the news and more importantly the bullish market sentiment for gold as a safe-haven asset. Gold pricing has been moving higher based on fundamental events rather than technical levels. While gold did soften by approximately $12 yesterday, today’s $15 gain erased yesterday’s decline, and all things being equal we could see a retest of $1880 by the end of the week.

Wishing you as always good trading and good health,

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Gary S. Wagner