Yellen knocks gold. Will Putin drive it back up again?

Gold took a sharp dip downwards following the week’s FOMC meeting and Janet Yellen’s subsequent statement on US Fed policy. but the Russia/Ukraine situation remains tense and could yet drive precious metals up again.

In her first post FOMC meeting statement Janet Yellen, the U.S. Fed’s new chairman, succeeded in creating uncertainty in both the general equities market and in gold and silver prices – and with the latter in particular with gold falling back sharply down to the low $1320s and silver falling even more to just north of $20 – levels not seen since late February. 

What did Yellen say?  When commenting on when the Fed might be prepared to see interest rates start to rise she seemed to suggest this could happen in six months – rather earlier than markets had been anticipating.  However we believe that in Fedspeak six months can mean absolutely anything from 6 months to indefinite and it may have just been an unfortunate choice of words interpreted by the markets as being a date set in stone.  The Dow fell around 0.7% following Yellen’s statement, the S&P 500 by 0.6% and today the FTSE 100 opened sharply lower mirroring falls in other European and Asian stock market indices of a percent or more.  U.S. markets have since made something of a recovery today, but nervousness remains.

While the gold price also looked like it might be starting to recover too, the bears might manage to put a stop to that – but with demands for stronger sanctions against Russia over its Crimea annexation coming from European leaders we could yet see an escalation in uncertainty over the whole Ukraine situation which could well drive precious metals prices back up again.

Should the suggested upping of European sanctions against Russia prove to be a damp squib yet again, and unless the U.S. moves up the ante a little (or a lot, which might be on the cards as the minor slap on the wrist to date is making President Obama look weak in comparison with his Russian counterpart) then President Putin may be prepared to test the West’s resolve further by stirring up more unrest in eastern (Russian-leaning) Ukraine – or perhaps in other areas of former Soviet controlled Europe where ethnic Russians make up at the least a sizeable Russian-leaning minority.  

The governments of the Baltic states for example are viewing developments in the Ukraine with a certain amount of trepidation.  They feel they could be next to see some kind of Russian engendered domestic uprising designed to give Russia the excuse to intervene to protect fellow Russians!  While this may seem unlikely no-one has yet second guessed President Putin on his likely end-game which seems to be designed to roll back the Europe/NATO influence on former Russian-controlled states with which it has a common border as it does with Estonia and Latvia..

And the political situation in European-leaning Ukraine itself remains to say the least a little uncertain.  The overthrow of the former President, Viktor Yanukovic, in favour of a kind of coalition of disparate political entities, including what would be considered unacceptable far right extremists in any other European nation, just adds fuel to the Russian claims that any new Ukrainian government will be controlled by fascist elements, however unlikely this may actually be, and thus present a threat to the ethnic Russian sections of the community.  The video posted yesterday on the internet showing a far right member of the new Ukrainian parliament physically assaulting the head of a Ukrainian television station and forcing him to resign because he had the temerity to show the Russian signing of an accord with Crimea on his TV station, can only add fuel to these kinds of flames – and possibly even raise doubts in the West as to who they may be getting into bed with! 

So far it would seem to be game and set to President Putin.  It yet remains to be seen if it is match too!  If the West fails to impose much stronger political and/or financial sanctions – even if failure to do so might in fact seem the most sensible course to stop the whole situation escalating into something much more dangerous – it will indeed be seen to be the case.  The danger here is that it may then persuade President Putin that the West is toothless and prompt him to push the envelope yet further and further.  Interesting times.


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