Gold rallied sharply on the COMEX open this morning, triggering buy stops at $1,380 an ounce to reach as high as $1,389.60 on the spot price. Russia held nighttime live fire exercises at several points on the Ukrainian border overnight, with smalls arms, machine-gun, and RPG fire being heard in border cities. The estimated 8,500 troops involved were backed by artillery and vehicle-mounted rocket launchers. Reports this morning indicate that the estimated 19,000 Russian troops in Crimea have been reinforced this morning by more troops moving in from Russia.
With no sign that Russian president Vladimir Putin will back down over reabsorbing Crimea into the Russian state, and the referendum in the Crimea set for Sunday, investors are scrambling for safe haven before the weekend. Gold and the Japanese yen are the choices today, as the dollar sees no safe haven support at all. In fact, the DXY index continues to fall this morning, to just above the 79.50 mark. Forex traders are warning that the dollar is approaching a “death cross”, where the 50 day moving average drops below the 200 day moving average, signalling more weakness ahead. The euro backed off over two-year highs yesterday, as ECB president Mario Draghi hit the press circuit promising low interest rates and no threat of deflation.
If the Ukraine hasn’t ratcheted up worries enough, there’s always China. Yesterday, Chinese premier Li Kequiang told reporters that while China’s economy faces “severe challenges”, the government was not going to bail out failing companies. Asian markets were rocked this week when a second company, Haixin Steel, defaulted on payments on its corporate bonds. Li has decided to let speculative “investment products” who made non-bank loans to distressed companies in a bid for high returns default when the risky loans fail to pay off. This is to wean the Chinese economy off the idea it has held that the government would rescue any company, no matter how reckless its investments were.
In the U.S., the government’s new Producer Price Index, which now tracks services, fell in February by 0.1%. The core PPI, which strips out food and energy, fell 0.2%. Analysts were expecting a gain of 0.2%. Year over year, the PPI for February gained 0.9%. This pushes back any expectations that the Fed will raise benchmark interest rates. An increase of those rates would be bearish for gold. Wall St. opened flat in very volatile trading, a day after posting the worst drop in over a month.
World stocks are down across the board, with the Russian stock market losing another 2.5% today, and the rouble and Ukrainian hryvnia both hitting lows. Euro stocks are notching a third day of losses, as the EU will be compelled to act on threats of sanctions against Russia on Monday, or lose credibility. This is an especially painful choice for the EU with billions of dollars of trade and investment into the Russian economy threatened.
After lagging gold all week, silver is attempting to close the gap this morning. Silver and the PGMs have been slowed by the recent drop in copper prices, caused by stockpiling in China. The strike in the platinum mines in South Africa is in its 7th week, which has idled 40% of global platinum production. 7% of global platinum production for 2014 has been lost, in a year where mining supply was already projected to fall short of demand.