Gold is rebounding on short-covering and bargain hunting this morning, while palladium has powered higher by over $20 an ounce.
The unwind from the Ukraine safe haven play seems to have completed yesterday, as gold held above the $1.329 mark in Asia overnight. It got a small boost in early London trading, which has held into the COMEX open. Silver, which hit a six-week low on yesterday’s COMEX open, saw an almost immediate rebound higher, and held on to that strength overnight.
Ukraine has announced that it is abandoning all its military bases in Crimea after the headquarters of the Ukrainian Navy was seized by force, to lessen the chance of accidental escalation in its troubles with Russia.
Russian president Vladimir Putin this morning signed a treaty officially annexing Crimea as part of Russia, thereby ensuring more sanctions. Putin is enjoying a five-year high in popularity, but gradually increasing sanctions by the West is starting to squeeze his billionaire friends and the Russian economy in general. The Russian MICEX index is down over 15% this year, and the rouble has lost 10% of its value. The only emerging market currency with a worse record is the Argentine peso.
The Russian Finance Ministry has canceled another bond sale due to “market conditions.” This is the sixth bond sale the Russians have canceled this year, due to the lack of buyers at interest rates below junk bond levels. Ratings agencies Fitch and Standard & Poors both have downgraded Russia’s sovereign debt outlook to “BBB negative” from “BBB stable”, citing concerns over more sanctions being imposed by the West.
Ministers of the European Union nations are meeting today, to request a plan to wean Europe off Russian natural gas and oil, to lessen Putin’s power over EU foreign policy. Russian energy exports account for 35% of total EU imports. The U.S. has already incrementally increased sanctions, focusing on banks and other businesses with ties to Putin’s closest allies. Visa and Mastercard have both suspended service to a major Russian bank that has sanctioned Russians as large shareholders.
The dollar is struggling to hold gains which resulted from Fed chair Janet Yellen’s slip of the tongue at Wednesday’s press conference, when she inadvertently told reporters that benchmark interest rates would be rising in a little more than a year. The Euro is slightly lower, while the yen and yuan both are marginally higher against the dollar.
Wall St. opened in the green, but has trended lower. The NADAQ quickly dropped into negative territory. European stocks gained on news that the EU as a whole was running a current account surplus in January. In Asia, the Nikkei hit fresh six-week lows as Yellen’s blooper over raising interest rates scared many Japanese clean out of the market last night. Hong Kong and mainland Chinese markets fared much better, a day after the Hang Seng was battered. The Shanghai exchange saw its best day in six months, while the Hang Seng had its best day in three weeks. The happiness was caused by speculation that the Peoples Bank of China would soon issue regulations that would allow companies to issue preferred stock, and rumors that restrictions on lending to real estate developers would be loosened.
While you may see some business outlets trumpeting that gold is seeing a big weekly loss, keep in mind that this is from the unwind of safe haven flight to gold over the Ukrainian crisis. Gold is still up over 11% on the year, and silver is up over 5%. Palladium has seen gains of over 9.5%, and platinum is up 4.75%.
In comparison, the S&P 500 is up less than 2% on the year, and the Dow Jones Industrials had lost more than a half percent for the year.