The Week In Hindsight, 09 May 2014

Last Friday marked the worst outbreak of violence in Ukraine since the crisis began, news of which sent gold prices rallying even in the face of a significant reduction in US unemployment and the largest monthly increase in new jobs added to the economy since 2010.

This left the metal with a lot to hold onto when heading into the new week, which consequently left prices under pressure as the flow of economic data releases continued to surprise to the upside, indicating that the much anticipated rebound in some developed economies may finally be taking hold.

Further compounding weakness was Janet Yellen’s testimony to the Joint Economic Committee in Washington and a Russian U-turn on Ukraine. Yellen, while drawing attention to a small number of risks, indicated that the FOMC’s operation to wind down its asset purchase program will continue at the current pace, despite that voices of concern over Q1 growth continue to emerge from some segments of the policy maker universe.

In addition to this, Russian President Vladimir Putin publicly denounced the actions of some separatist militants in Ukraine while imploring them not to go ahead with a planned public poll on secession from the nation which is intended for this weekend. While the statements from Russia did little to deter the rebels, they did go some way toward soothing international diplomatic tensions.

Early opinion polls show little public support in Donetsk and other areas of eastern Ukraine for annexation of the area by Russia. The recent change in tone from President Putin may also mean that, should the eastern region of its neighbouring country vote overwhelmingly to join Russia, the Russian government could decline the request.

Although the final outcome here is difficult to predict, one thing that is a bit clearer is that the entire time there is a risk the Ukraine crisis could escalate once again, further downside movements in gold are likely to remain muted. Having said this, should the polls at the weekend yield a prominent display of opposition to secession while economic data from western economies continues to improve then the metal could, once again, find itself en route to levels not seen since closer toward the beginning of the year.