Russian saber-rattling sent gold over $1,350 an ounce earlier this week, its highest price in four months. But, contrary to many press reports, it was neither safe-haven demand nor physical buying that fueled gold’s short-lived price advance.
Instead, it was institutional speculators and short-term traders – among them the trading desks at some of the gold-dealing banks – who rushed reflexively to buy gold futures and other “paper gold” derivatives . . . and then sold quickly to take profits as the crisis seemed to abate.
Meanwhile, buyers in China and India, the two largest physical markets in the world, continued to dance to their own market fundamentals, virtually ignoring the geopolitical drama unfolding in Europe.
It was the risk of war and the possibility of Russian troops storming into the Ukraine that triggered the rush into paper gold . . . and it was Russian President Vladimir Putin’s assurance that there would be no imminent invasion that led to swift profit-taking and a quick price decline back to the $1,330 area.
If Russia resumes its saber-rattling, the Ukraine situation may continue to drive the gold price in the days immediately ahead.
We are reminded just a little bit of gold’s glory days when the metal’s price served as a barometer of global geopolitical anxiety – but, so far, the rise in anxiety has been rather muted . . . and so, too, has been the past week’s rise and fall in the gold price.
There is certainly the potential for the crisis in the Ukraine to flare-up again – bringing with it, another round of dramatic gold-price action.