Geopolitical double whammy from Ukraine and Iraq should make this a week to remember for gold and silver
By Peter Cooper
Sunday, 15 June 2014
Standby for some more geopolitical shocks to raise the price of energy and precious metals this week. First up is likely to be the final cutting of gas supplies to Ukraine from Russia tomorrow. It’s been threatened many times but should finally happen as the eastern Game of Thrones moves to another level.
The death of 47 Ukrainian paratroopers on Saturday when their plane met a Russian-made missile was another escalation of this crisis. So too was the sighting of unmarked Russian tanks inside the eastern region. All hopes from D-Day of a quiet end to this clash of nations will likely fade this week, and global investors will continue a flight to safe haven assets.
Europe gets half of its gas from Russia through pipelines that cross the Ukraine so this is going to have an immediate impact on prices. Energy prices are of course mainly rising due to the fall of Iraq’s second city Mosul to an Al Qaeda splinter group ISIS last week, and their ongoing advance towards Baghdad.
The uncertain and slow US response is allowing these rebels to make amazing progress despite being relatively small in numbers. What is becoming painfully obvious is that the Iraqi regime is sick to the core and unable to mobilize its own defense properly.
At risk is the Middle East’s second largest oil producer at 3.5 million barrels per day. Not all of it is going to fall into rebel hands, unless there is another catastrophe like Mosul, but the loss of output will put accute pressure on global oil supplies already tight due to outages in Syria, Libya, Nigeria and Iran.
Gold and silver
Gold and silver are the classic safe haven assets in times of geopolitical crisis. Precious metal prices advanced last week as the news worsened. There has been a rush to cover Comex short positions by professional investors who’ve correctly sensed the turning of the tide for oversold gold and silver.
Naturally it has been the same story in the energy market. Higher oil and gas prices because of the double whammy coming from Iraq and Ukraine have started to be marked to market but there is a long way to go in this trend reversal.