 | Get all the essential market news and expert opinions in one place with our daily newsletter. Receive a comprehensive recap of the day's top stories directly to your inbox. Sign up here! |
(Kitco News) The gold market is looking to end June down around $47 — its worst month since February. The precious metal is reacting to central banks doubling down on hawkish rhetoric and ignoring Russia's turmoil. But some analysts see geopolitics playing a more significant role in driving the gold price.
After a volatile weekend, which saw an aborted mutiny in Russia led by Yevgeny Prigozhin, the leader of armed Wagner mercenaries, gold was trading just $5 higher on the day.
Markets are still confused as to how to digest the news from Russia, with Prigozhin stating Monday that he had never intended to overthrow the government. Yet, his whereabouts remain unknown.
"We went as a demonstration of protest, not to overthrow the government of the country," Prigozhin said in an 11-minute audio message. "Our march showed many things we discussed earlier: the serious problems with security in the country … We halted at the moment when the first assault unit deployed its artillery (near Moscow), conducted reconnaissance and realized that a lot of blood would be spilled."
The gold market has not seen a big move from increased geopolitical uncertainty, folding under the pressure of a global push by central banks to keep its tightening cycle engaged. August gold Comex futures opened at $1,981.30 an ounce at the start of June and were last trading at $1,933.60 an ounce.
The full impact of the situation in Russia remains uncertain. And a reaction could still come.
"The armed uprising by Yevgeny Prigozhin's Wagner mercenary group against the Russian military over the weekend has dealt a heavy blow to President Putin and exposed cracks in the regime," said Capital Economics senior emerging markets economist Liam Peach. "There are a lot of unknowns about how things will play out at this point."
A lot of attention is also being given to how this affects the war in Ukraine. Peach added that there is potential for a resolution, but the risk tilts towards Russia devoting more resources to the war to appease militarist factions. "While a full-blown war economy looks unlikely, a larger war effort could still threaten the unstable equilibrium that has, to this point, been able to preserve macroeconomic stability in Russia," he said Monday.
In response to the events in Russia, gold had paused its selloff, finding support for the time being.
"Gold has perked back up following the weekend's dramatic developments in Russia as investors seek out the precious metal's safe haven appeal once again," said Kinesis Money market analyst Rupert Rowling. "Just days after looking set for a period of steady decline as the bearish factors for gold outweighed the bullish ones, uncertainty over how the Ukrainian war will now play out and the prospect of an internal battle within Russia have sharply reversed gold's fortunes."
It is still unclear how permanent of a role the geopolitical triggers will play within the gold space, Rowling said. "If this proves to be the beginning of the end for President Vladimir Putin's totalitarian control on Russia, then the resultant uncertainty is likely to keep gold supported in the medium-term with investors wanting to keep some risk off the table," he said.
Some analysts see the turmoil in Russia as lowering the overall risk appetite and igniting the safe-haven gold trade.
"This Russian coup has just complicated the war; a more destabilized Russia (even though more weakened) is not necessarily comforting (Russia just moved tactical nuclear weapons to Belarus, and even if Russia loses control of its nuclear arsenal, that ain't great either," said MKS PAMP head of metals strategy Nicky Shiels. "There is more geopolitical uncertainty (not less), so a backdrop for a 'lower risk/higher haven' regime has been ignited."
Gold will ignore the situation if there is hope that the war in Ukraine will have a way of getting resolved. "Putin is in a more vulnerable position, and Russia's near-term ability to fight in Ukraine has been significantly degraded. For now, markets will be vigilant as it really is a moving picture," Shiels added Monday.
The muted response is partly due to a lack of clarity over what comes next and financial markets being somewhat used to increased geopolitical uncertainty due to Russia's action, said ING's global head of strategy Chris Turner.
Instead, gold is largely focused on the inflation narrative and what central banks around the world are doing.
"Both central bankers and governments are under fire for having kept monetary and fiscal policy respectively too loose for too long," Turner said. "These (or at least monetary policy anyway) will be the hot topic for this week at the ECB annual symposium in Sintra. Many of the G7 central bank governors are in attendance and presumably will deliver a hawkish message, similar to the one that Federal Reserve Chair Jerome Powell delivered to Congress last week."
In terms of price levels, $1,900 an ounce remains an important psychological support level. "My preference for gold is to place sell-stop orders below $1912, with the aim to play bearish momentum into and below the figure," said Pepperstone's head of research Chris Weston. "Gold bulls will want a close back above $1,938."
