Saturday, May 10, 2014

Gold and Russia's war

It was noted in the press that gold got a boost on Thursday from “geopolitical tensions as pro-Moscow separatists in eastern Ukraine ignored a call by Russian President Vladimir Putin to postpone a referendum on self-rule, a move that could lead to war.”  Increasing geopolitical tensions was cited in this report as one of the potential catalysts for an extended gold rally.  If it materializes it could indeed give a sizable boost to the gold price.  There’s a problem with this scenario, however, as the following graph shows.

The above chart shows the Market Vectors Russia ETF (RSX), a proxy for Russia’s stock market.  In contrast to the weakness displayed by the ETF in February and March, the RSX is on the mend and appears to be establishing an interim bottom.  RSX has in fact been trying to break out above its 10-week chart resistance at the 24.00 level.  If RSX manages to force a breakout above this pivotal level in the coming days it can only mean one thing: war has been forestalled, at least for the foreseeable future.  While this would be good news for Ukraine, this of course is not the news that gold is looking for.

[Excerpted from the 5/8 issue of Gold Strategies Review]