The gold market is showing some strong upside in early action Monday as the new trading week gets underway. The general sense of “risk-off” is being fueled by several issues, with the ongoing Russian/ Ukrainian war being at the forefront.  As the geopolitical situation deteriorates further, the risks to stocks and risk assets may increase further. This, in turn, may fuel further buying in perceived safe-haven assets such as gold, and the market could potentially see a rapid run to $2000 per ounce or higher.

 

Russia and Ukraine are supposed to hold talks today about a de-escalation. The President of Ukraine reportedly said he did not feel much would come of today’s talks. Russian President Vladimir Putin recently put his nuclear forces on high alert in another sign that he may be willing to go even further than previously thought. Some analysts believe that cyber attacks from Russia on the West could be seen next. With the Russian President having seemingly backed himself into a corner, some are also entertaining the worst possible outcome: A nuclear exchange between Russia and the U.S.

 

Recent sanctions slapped on Russia may very well cripple the nation’s economy. The removal of several Russian banks from the SWIFT system could also stop commodity trade from the region, possibly causing a further rise in commodity prices at a time when prices are already moving sharply higher.

 

As the effects of sanctions are felt, the Russian Ruble sank to a record low versus the dollar. The Russian central bank said it would begin to buy gold on the open market as it was also forced to raise its main interest rate from 9.5% to a whopping 20%. What Russia does next is anyone’s guess, but it seems that President Putin may hold the keys to the country’s future in his hands.

 

The gold market is also rising due to accelerating inflation. Prices remain high and could go even higher in the months ahead. While it was thought for a period of time that the Fed could hike rates by a half-point next month, the war has eroded that outlook and a 25-basis point hike is far more likely.  This hike is not likely to have much, if any, effect on inflation but may be the first of several hikes to be seen over the year. While the central bank has just three rate hikes penciled in thus far, most analysts agree that the Fed may have to hike rates four, five or even six times or more to gain the desired effect. The threat of several rate hikes may keep stock investors wary and could keep volatility elevated for much of the year.

The bulls remain in form control on the daily chart. The next upside target will be the recent highs in the $1970s. The bears will attempt to force a decline in price, ideally back below the $1850 level on a closing basis.

Its official-Russia has launched a full-scale invasion of Ukraine. After stationing troops along the border for weeks, Russia has now given the order to move into Ukraine. The news sent markets into a tailspin. Stocks were down sharply earlier in the day, with the Dow Jones Industrial Average declining by over 700 points at the session lows. Gold shot higher, trading up near the $2000 level in the overnight session, running out of gas around the $1976 area. The yellow metal ajs since backed off sharply, however, as traders and investors reassess the Ukraine/Russian conflict. The metal has, in fact, dropped below the $1900 level in late afternoon trade as the Biden Administration issues new sanctions against Russia.

 

The new sanctions announced by Biden today will target more Russian banks as well as the country’s ability to do business in alternative currencies including yen, pounds, euro and more. President Biden suggested that the war is a “premeditated attack” and Russia will now bear the consequences of its actions. The President reiterated that the sanctions are designed to have a long-term impact on Russia while minimizing any effects felt by the U.S. and its allies.  The Biden commentary sent markets moving. Gold declined and not only gave up all of its overnight and daily gains but went deeply into negative territory.

 

The Russian/Ukrainian war could have an effect on the Fed and its tightening plans. While the Fed is still expected to begin tightening next month, the pace of any further hikes could potentially be slowed due to the conflict. Not only are markets having to watch the effects of war, but there may also be the risk of an oil shock. Oil prices hit over $100 per barrel earlier in today’s session, and a rise in tensions over the conflict has the potential to disrupt supplies, possibly leading to sharply higher prices. Stronger crude would not be a good thing, either, as it may come at a time when inflationary pressures are already being felt by the public. Higher energy costs could cause the public to cut back on spending, and as spending declines, so does economic output.

 

Fed policy has already likely been very complicated due to the ongoing viral pandemic. Now, the Fed will also be forced to contend with war and the possibility of an oil or commodity spike. These issues may cause the central bank to rethink its plans, although they are unlikely to stop the Fed from taking interest rates higher. The issues may, rather, give the Fed reason to slow down their tightening or take a more modest approach to policy normalization.

 

Recent developments have lessened the likelihood of a half-point hike by the Fed next month. Fed Funds Futures now show a less than 10% probability of a half-point hike. The central bank will almost certainly hike by 25 basis points, as usual, and point to further hikes down the road.

The gold market is trading slightly higher around lunchtime Tuesday as things heat up further between Russia and Ukraine. Gold traded up to an eight-month high today as risk aversion has again set in and as investors seek out perceived safe-havens. Constructive charts combined with the geopolitical scene are making it easy for investors to buy gold. Positive momentum could carry the metal higher as it faces an important test of technical resistance.

 

Investors and traders returned from a long holiday weekend to see that Russia is now putting troops into breakaway parts of Ukraine. Russia has called the move a peacekeeping mission, although that description has left the U.S. and its allies scratching their heads. The U.S. and its allies have already initiated sanctions against Russia. Germany has halted certification of a major oil pipeline into Russia, yet Russia appears to be intent on invading Ukraine. According to the U.S. Russia now has nearly 200,000 troops stationed along the Ukraine border. It is difficult to imagine a reason for such a buildup that does not include an invasion of Ukraine by Russian forces.

 

The rising Russian/Ukraine tensions are having an effect on global markets. Crude oil prices shot higher overnight, hitting a 7.5-year high of $96 per barrel. The stock markets are also being hit today. The benchmark Dow Jones Industrial Average is down nearly 600 points in the early afternoon. With a couple of hours left in the trading day, volatility and selling could take over and fuel a massive down day for equities that could lead to declines of several percentage points. The dollar is steady at mid-day, while yields on the Ten-Year Note are currently fetching some 1.925%. Yields have declined from recent highs over the 2% level as safe haven buying has lifted demand.

 

The gold market has backed off from overnight highs. Given the metal’s demand from buyers looking for safe havens, it is not surprising that it is off of overnight highs. Some traders and investors likely decided to take a quick profit. There is almost certainly a significant amount of risk premium built into the price of gold currently, and if tensions start to calm the market could see a sharp pullback.

 

The bulls remain in firm control of the market on the daily chart and a steep uptrend is in place. The bulls next target is producing a close above the May 2021 highs near $1923 per ounce. If this level is cleared, the market could really pick up significant steam and could possibly rocket higher to $2000 or beyond in short order. The bears, on the other hand, will still target a close below the $1800 level as a starter with the $1780 area next. Although the metal is still in no man’s land, it does appear to be inching higher and the bulls may have the advantage in the weeks and months ahead.

The gold market is having a strong upside day as prices have hit the $1900 level before taking a breather. The eight-month high in price is likely due to increasing risk aversion as worries over Russia and Ukraine mount further. Risk tolerance is sharply lower today as a Russian invasion of Ukraine appears to be imminent. President Biden also gave a somber update of the situation earlier today. Russia not only appears to have not removed any troops as was previously thought, but appears to have added several thousand more along the border.

 

The possibility of a Russian invasion is a major source of global concern. It is unclear how the U.S. and its allies might react to an invasion, but a full-blown ground war does not appear to be out of the question. Such a military conflict could be on a grand scale and could change U.S./Russian dynamics for some time to come. The worry over a Russian conflict comes at a time when markets are already grappling with several other worrisome issues, including inflation and the potential for higher interest rates.

 

The gold market is seeing benefit from several different angles currently and combined those angles have significant power to move the market. The threat of military conflict, inflation, weaker than expected economic data and a slowing economy are all likely providing gold some lift while weighing on stocks and risk assets. As the hawkish Fed begins to tighten rates next month, the central bank could run the risk of putting the economy back into a recession. It appears that the Fed currently believes inflation to be the greater risk, however, and as such it will act accordingly. Multiple rate hikes coupled with a balance sheet contraction could, however, be too much for markets to bear. As investors flee stocks and risk assets over the next several months, much of that capital could find its way into the gold market as investors seek out alternative asset classes to put capital to work in.

 

The gold market may face another key upside test in the days ahead. Although the metal has had a good run up today, the real test may be in the $1903-$1923 range. This $20 zone may act as a major upside buffer and resistance zone, and could leave the bulls frustrated and tired. If the market is able to surpass the $1923 area on a closing basis, however, the stage could be set for a rapid and sharp rise higher. Such a move could extend to previous all-time highs or beyond. With little, if any, chart resistance in the way, the bulls could potentially have a field day taking prices higher.

 

An escalation of Russian/Ukrainian tensions could potentially drive gold through upside resistance in short order. If tensions calm over the next few days, the bulls may elect to take some profits and the market could enter a back and fill mode for a bit. Either way, the bulls are now in firm control of the daily chart and any dips are likely to be aggressively bought.

The gold bulls are out in force Monday as spot prices have risen above key resistance. Gold is now sitting around $1865 in late morning trade and appears ready to close above the $1850 level. Today’s strong showing may pave the way for further gains in the week ahead and may also entice short-term momentum traders to jump on board. A mix of geopolitical and inflation jitters is the fuel for the fire today and may continue to act as such in the weeks and months ahead.

 

The trading week started off on a risk-off mentality this morning as stock markets opened under pressure. Not only are investors concerned about inflation hitting a 40-year high, but they are also watching geopolitical developments across the pond. Russia appears ready to invade Ukraine any day now, and if it does, it is unclear how the United States might react. The U.S. could simply slap more sanctions on Russia or could counter with a full-blown ground war. The unknowns surrounding Ukraine are a source of market tension right now and may boil over if Russia does in fact invade the nation.

 

With no major economic news due for release today, markets are paying close attention to the bigger picture. Crude oil, the dollar and the 10-Year Note yield are all higher today, furthering concerns over inflation. Investors may have more to worry about tomorrow concerning price pressures, as the latest data on producer prices is set for release Tuesday. A hot PPI reading could cause dramatic volatility and selling in the days ahead. Any reading over the expected rise of .5% is likely to be viewed as extremely inflationary and could even cause the Federal Reserve to take emergency action before the expected rate hike in March.

 

Gold hit a three-month high today and could be poised for more gains in the days ahead. With key resistance now breached at $1850, the market may find little standing in the way of a return to previous all-time highs or beyond. Of course, gold’s fortunes over the next several months and years may depend on several key factors, including the Fed’s monetary policy decisions and geopolitics. Currently, the market is seemingly in a bullish position. Even if the Fed does hike rates harder or faster than expected, the gold market may continue its ascent if inflation remains problematic. Not only that, but gold has risen during previous tightening cycles and there is no reason to believe it won’t do the same during this cycle. The $1882 area (November high) is likely the next level to test for the bulls. The bears will look to take the process back down to below $1800 as a starting point. Price action between these two areas is likely just noise but could exist for some time. Until a breakout does develop, bargain hunters may step in to buy any significant dips in price.