Commodity Update: Gold – 15 August 2014

Russia prepares convoy of 260 trucks to provide humanitarian aid to eastern Ukraine, prompting statements of concern from capital cities across the western world. The prevailing concern among political leaders in Europe and the US has been that the humanitarian aid convoy would, and could still be, used as the pretext for an invasion.

The progress of Russia’s aid convoy and underlying political intentions dominated the news throughout much of the week, forming the key driver of support for gold prices above the $1,310.00 level. However, waning momentum and uncertainty ahead of the release of US producer prices data sent the metal plummeting by $20, below the $1300 level, early on Friday afternoon.

Despite the significance of the $1300 price level being breached, gold’s decline was short lived as statements emerged from Western media outlets, via Kiev, a short time later alleging that Ukrainian forces had attacked a Russian military convoy in eastern Ukraine.

Details emerging later suggest that the convoy crossed the border some time on Thursday night. While the allegations were immediately refuted by Moscow, this proved insufficient to prevent a rapid recovery in gold prices.

Since the first reports emerged, Russian media outlets have alleged that the statement from Kiev was false, while indicating a growing level of concern among the public and politicians that the humanitarian aid convoy could be in danger of attack once inside of Ukraine.

This was while a separate post appearing on the FSB website a short time after states that the agency has evidence that roads ahead of the convoy are being mined as part of efforts to prevent it reaching rebel held territory.

Although it is not possible to say with certainty that the aid convoy is or isn’t a precursor for an invasion, one thing that is almost certain is that a deliberate attack upon trucks providing any form of aid would difficult to defend and could substantially increase the risk of military intervention from across the border.

Consequently, gold prices remain biased to the upside and are likely to remain so until events in eastern Ukraine settle once again.  




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