Gold has retraced much of yesterday’s gains as tensions in Ukraine have eased somewhat. While the risk-off trade is being unwound, the Ukrainian crisis is far from being resolved and the situation can best be described as “fluid”.
While investors in risk assets were heartened by Russian President Putin’s order that Russian troops involved in exercises near the Ukraine border return to their bases, the Russian military remains in control of much of the Ukrainian region of Crimea. Talk of sanctions against Russia continues, while the Russians are threatening retaliation for any such sanctions. It seems like things could re-escalate in a hurry.
The euro rebounded initially on the lowered tensions in Ukraine, but has since come under renewed pressure amid revived talk that the ECB may ease further. PPI for the eurozone came in at -1.4% y/y for January, it was the biggest annual drop in producer prices since late-2009 and further evidence of deflationary pressures in the eurozone.
This comes even amid heightened risks of higher food and energy prices in Europe due to the aforementioned crisis in Ukraine. With eurozone Q4 GDP at a meager +0.3% q/q and consumer prices continuing to trend lower through January, the ECB remains under considerable pressure to act.
With tensions still high in Eastern Europe and continued potential for further monetary easing on the part of the ECB, the underlying fundamentals for the gold market remain supportive. The technicals remain positive as well, with many analysts suggesting potential back toward the $1400 zone.