Ahead of Crimea’s referendum on Sunday, the gold price is set to complete its longest weekly rally since 2011. Yesterday it rose to a six-month high as Western sanctions on Russia were rumoured.
At the moment there are two key drivers for the gold price; events surrounding Ukraine and concerns for the Chinese economy.
However these can both be seen as short-term drivers for the gold price. Demand driven by the West and Russia standoff is safe haven demand. This is best reflected in the activity being seen in the SPDR Gold Trust, the world’s largest gold-backed ETF which yesterday saw inflows of 2.10 tonnes to 813.30 tonnes.
As we explained earlier this week the gold price in the run-up to war tends to rally before then returning to levels seen prior to when there was any talk of war.
It is likely that the gold price may correct after this rally, given low physical demand in the East and low premiums on the Shanghai gold exchange. At the moment the gold support is coming from safe haven demand, which may dwindle depending on the Ukraine situation.
Speaking of Russia, there was a strong reaction to a note put out by Societe Generale SA analyst Michael Haigh who suggested that Russia may sell some of its gold holdings in order to work around any sanctions placed on the country.
However the latest data released by the World Gold Council, yesterday, showed that the Russian Central Bank remains the eighth largest holder of gold. Whilst they may have surprised everyone back in September when they sold gold, they are yet to sell any in 2014.
Some gold investors are concerned that a decision by the Russians to sell gold following the imposition of sanctions will affect the gold price. However, whilst it may affect sentiment it is unlikely to have a major impact.
Young Guns of Gold
Earlier today Jordan Eliseo, Ronal Stoeferle and I recorded the latest Young Guns of Gold Hangout. Whilst we discussed gold there are some major events in the global economy which are currently painting an interesting picture. We discussed how much the weather really affecting the US economy, what Dr Copper is telling us about the health of the global recovery and what China’s slowdown really means. We then focus on the Permanent Portfolio which is something we have previously discussed at length and you can read more about here.