This weekend saw Russia move troops into parts of Ukraine, setting off global diplomatic conversations and making investors nervous.
Gold stocks in particular saw a jump of more than one percent, reaching an intraday high of $1,354 an ounce, as traders sought a safe-haven. (Physical gold doesn’t seem to be quite as reactive yet.)
It currently looks like that gold surge will be short-term, but that may change depending on the developing tensions. If the situation worsens, expect gold to climb.
An Economic Standoff
The touchy situation in Ukraine is as much — or more — economic as it is political. Russia and the Ukraine have long had a close relationship, and the recent civil unrest started due to questions over whether it was better to align with Russia or with the EU. The now-former president picked Russia and heavily discounted oil prices, while the people saw joining the EU as the way of the future.
On Friday, Russia moved troops to occupy the region of Crimea, which has perhaps the closest ties to Russia, both culturally and ethnically. In fact, Russia has maintained a naval military presence in Crimea for the past 230 years. The region provides Russia with access to the Black and Mediterranean Seas.
Regardless of what may happen, the unrest in Ukraine is already impacting the area. The country is a breadbasket for that part of the world, providing wheat and corn that is shipped to 37 countries. Output for 2015 is already down 16 percent from last year and we can expect to see further implications for European economies if production continues to slow.
Furthermore, Russian oil provides 25 percent of Europe’s needs, and about half of that oil flows through pipelines in Ukraine. If there is further military action, those pipelines might be blocked, leading to a sharp climb in oil prices.
Possible Intervention
Because of the weeks of riots in Ukraine — and because the ouster of the Ukrainian president meant Russia withdrew its $15 billion bailout package — the Ukrainian economy is on the rocks and in desperate need of a cash infusion. But it’s hard to know where that might come from.
It’s possible that the International Monetary Fund will raise the $35 billion Ukraine needs. A fact-finding mission is underway.
U.S. Treasury Secretary Jack Lew said Sunday that the U.S. is “prepared to work [with] partners to provide as much support as Ukraine needs” for economic growth and stability. However, the Federal Reserve’s staunching the flow of economic stimulus is hurting emerging markets worldwide, Ukraine included, so it’s hard to predict an outcome.
Watch and Wait
For now, investing in gold and other precious metals is the safe bet. Browse Provident Metals’ gold bullion selection at http://www.providentmetals.com/gold-bullion.html.
What do you think will happen with the situation in Ukraine? Has it affected your investing strategy?
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