Gold is above $1,300 in New York trading this morning, after yesterdays’ $30 reversal from a ten-week low. Other precious metals are following pace, after receiving big boosts over the crisis in Ukraine actually resulting in bloodshed yesterday. Ukrainian troops, in an effort to dig out pro-Russian militants, engaged in a firefight at an insurgent checkpoint, killing five.
Russian president Vladimir Putin warned that if the new pro-Western government in Kiev used army troops against the separatists, which had seized government buildings and occupied them for the last few weeks, Russia would consider it a serious crime. Shortly after Putin’s speech, large-scale Russian military exercises were announced along the border with Ukraine.
Stock markets promptly tumbled, and are mostly lower again today, with the exception of the Nikkei. Tokyo stocks were up on lower than expected inflation numbers, which sparked hopes that the Bank of Japan would print more money faster in order to raise inflation.
Investors are fleeing the dollar, as the greenback shows once again that it has lost the faith of foreign investors as a safe haven. The Japanese yen and Swiss franc have become the preferred safe haven currencies, and both hit one-week highs against the dollar. Thus, we have people putting more faith in a currency whose government has made its devaluation a national priority (the yen) compared to what has been considered the world’s reserve currency (the dollar).
In other economic news, the Russian central bank has had to raise interest rates again, in order to fight spiking inflation. This is the second time in two months that benchmark interest rates in Russia have been hiked, due to sanctions and uncertainty over war with Ukraine. Standard and Poors announced today that it has downgraded Russian sovereign debt to BBB-, one step above junk status. This gives the Russian Federation the same credit rating as third world countries such as Congo and Burkina Faso.
Tightened security measures during the elections in India have resulted in a gold shortage, just ahead of the second-largest gold buying festival of the year. Akshaya Tritiya is May 2nd. Even supplies of smuggled gold have dried up, and gold is now trading at $110/oz over London spot price. Gold and cash are favorite methods for political bribery in India, and the government has arrested several people with large amounts of of undeclared gold and cash. Due to the history of political bribery in elections, anyone who is carrying more than 50,000 rupees ($820) in cash, or any gold, must have an ID and proof of where the cash and gold came from.
Legal gold imports for April and May are expected to be half those of March, as stockists refrain from buying due to anticipation that gold import tariffs will be relaxed after the election.
Bloomberg has an article today on how things are really looking good for silver, citing that large number of bullish bets on silver futures, inflation taking off at the grocery store, and geopolitical uncertainty.
Even though the weaker yuan has muted Chinese physical gold demand recently, the CME Group (Chicago Mercantile Exchange), one of the world’s largest commodity exchanges, has announced that it is planning an Asia gold futures product, redeemable in physical gold. Instead of the 400 troy oz standard contract in the West, this one will be a one kilogram contract, making it far more attractive to retail investors. The company is looking at either Hong Kong or Singapore to be the host for the new venture. Both locations have several large commericial gold vaults built to service the area, which is home to the world’s largest sector for physical gold demand.