Gold’s worst month since February
The gold market is looking to end June down around $47 — its worst month since February. The precious metal is reacting to central banks doubling down on hawkish rhetoric and ignoring Russia’s turmoil. But some analysts see geopolitics playing a more significant role in driving the gold price.
Volatile weekend and Prigozhin’s mutiny
After a volatile weekend, which saw an aborted mutiny in Russia led by Yevgeny Prigozhin, the leader of the armed Wagner mercenaries, gold was trading just $5 higher on the day. Markets are still confused as to how to digest the news from Russia, with Prigozhin stating Monday that he had never intended to overthrow the government. Yet, his whereabouts remain unknown.
Gold market unaffected by geopolitical uncertainty
The gold market has not seen a big move from increased geopolitical uncertainty, folding under the pressure of a global push by central banks to keep its tightening cycle engaged. August gold Comex futures opened at $1,981.30 an ounce at the start of June and were last trading at $1,933.60 an ounce. The full impact of the situation in Russia remains uncertain, and a reaction could still come.
Potential effects on Ukraine war
A lot of attention is being given to how this affects the war in Ukraine. There is potential for a resolution, but the risk tilts towards Russia devoting more resources to the war to appease militarist factions. “While a full-blown war economy looks unlikely, a larger war effort could still threaten the unstable equilibrium that has, to this point, been able to preserve macroeconomic stability in Russia,” said Liam Peach, Senior Emerging Markets Economist at Capital Economics.
Gold finds support amid Russian events
In response to the events in Russia, gold had paused its selloff, finding support for the time being. “Gold has perked back up following the weekend’s dramatic developments in Russia as investors seek out the precious metal’s safe haven appeal once again,” said Kinesis Money market analyst Rupert Rowling. It is still unclear how permanent of a role the geopolitical triggers will play within the gold space.
Gold trade and risk appetite
Some analysts see the turmoil in Russia as lowering the overall risk appetite and igniting the safe-haven gold trade. “There is more geopolitical uncertainty (not less), so a backdrop for a ‘lower risk/higher haven’ regime has been ignited,” said Nicky Shiels, Head of Metals Strategy at MKS PAMP.
Focus on inflation narrative and central banks
Instead, gold is largely focused on the inflation narrative and what central banks around the world are doing. “Both central bankers and governments are under fire for having kept monetary and fiscal policy respectively too loose for too long,” said Chris Turner, ING’s Global Head of Strategy.
Price levels and support
In terms of price levels, $1,900 an ounce remains an important psychological support level. “My preference for gold is to place sell-stop orders below $1912, with the aim to play bearish momentum into and below the figure,” said Chris Weston, Pepperstone’s Head of Research.
