Failed insurrection in Russia shows how fragile the global social fabric is, which will support long-term gold prices
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(Kitco News) - The gold market is starting the week on a slightly positive note, and while it may not be catching a major safe-haven bid after a 24-hour insurrection in Russia, analysts said that gold should remain a vital portfolio diversifier in times of heightened uncertainty.
The gold market remains under the critical psychological level at $1,950 an ounce after mercenaries with the Wagner Group, led by Yevgeny Prigozhin, launched an armed rebellion and marched to within 200 kilometers of Moscow during the weekend.
August gold futures last traded at $1,936 an ounce, up 0.34% on the day.
The rebellion ended nearly as quickly as it started as Moscow made a deal with Prigozhin, exiling him to Belarus and offering amnesty to Wagner's professional soldiers if they stood down.
Although Vladimir Putin remains the leader of Russia, according to many political analysts, his iron grip on power has weakened significantly in the last 24 hours.
Jeffrey Christian, managing director of CPM Group, said with the attempted coup failing, gold prices in the next few days could see some short-term selling pressure as cooling geopolitical fears reduce the precious metal's safe-haven allure.
However, he added that long-term, the instability seen during the weekend should provide long-term support for the precious metal.
"Gold prices might come off further as investors continue the long liquidation and lack of stronger physical demand for gold. Interest rates may soften slightly, as might oil prices. Equities in the Western markets may rise some. Such moves would be short-lived in our view, a day or so, before the realities of what an ultimate change of Russian government might mean for the world," he said in an exclusive comment to Kitco News. "So longer term, there could be bouts of market concerns about the postures and behaviors of a future Russian government, but there also may be reduced market anxieties due to the realization that Russia's stature on the world political and economic stages will be diminished regardless of which outcome ultimately unfolds."
Christian added that he is not surprised that the insurrection has happened.
"CPM has been saying and writing for perhaps 16 months that there would be internal dissent within Russia due to Putin's mismanagement of a variety of things compounded by his decision to attack Ukraine. We have been suggesting that, in our view, Putin would be replaced, most likely by a much more hard-line set of leaders, but we did not expect that until the end of the war," he said. "Our expectation for Russian politics is that there will be a regime change at some point. The events of Friday and Saturday are not over. They represent an acceleration toward an end to the war against Ukraine and toward a new government in Russia. We do assume that a post-Putin government will be a harder line. There are no alternatives available in Russian politics today that would represent a softening of the imperial view of what Russia's rightful place should be in the world."
Michele Schneider, director of trading education and research at MarketGauge, said that the attempted coup in Russia shows just how fragile the world is. She added that she expects geopolitical volatility to rise as the decades-long globalization trend weakens.
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"It doesn't matter where you look; you can see the fragility in the social fabric everywhere," she said. "There are two things that I'm pretty certain about. One: Food prices aren't coming down anytime soon. And number two: the ECB and potentially the Federal Reserve continue to tighten the screws on the global economy by raising interest rates. You've now got two things that are choking consumers: rising prices, inflation and higher interest rates. The instability over the weekend was just a, was just a ripple towards the climax, which we have not seen yet."
In this current environment, Schneider said that even if gold prices move lower, it is very short-sighted for traders to be bearish on gold and other raw commodities.
"I see any short-term weakness in gold and silver as buying opportunities," she said. "If gold can get back above $1,950, that is a good sign this correction could be over. If gold gets back above $1,980, then $2,000 is just around the corner.
Schneider added that investors should pay attention to the physical gold market because that will reflect the geopolitical premium in the marketplace, as investors will want to have physical gold to protect their wealth.