Russian Sanctions Roil Markets, Gold Rises

Russia Cut Off From Global Economy, Dollar Steadies 

World leaders have moved to cut Russia off from the global economy and monetary system due to the incursion into Ukraine. The moves include an ever-ramping list of sanctions that include removal from the SWIFT network and blocking the Russian central bank from making international transactions. These moves are intended to financially isolate the country and force an end to the fighting in Ukraine but they may take time. What happens between now and then is anybody’s guess and that is why volatility is spiking. 

What the Russian sanctions will ultimately mean for the global economy will take time to unravel but one thing is clear. Russia may be a small economy but it is vital to the global system. The country’s GDP came close to $1.5 trillion USD in 2020 which puts it in 11th place overall and fundamental to the financial system. Cutting this activity out of the larger economic system will have long-lasting and far-reaching implications, not to mention the direct impact on the Russian people. 

Risk-Off Gold Moves To New Highs, Dollar Caps Gains  

Safe-haven asset gold NYSEARCE: GLD spiked following the Russian invasion as investors flee riskier assets. The price of gold broke above resistance to set a new 13-month high. The high, well above the $1900 level, has far been met by selling resistance that may continue to cap gains. The near-term outlook for the metal is now consolidation while the market digests the latest news. If there is no further escalation in the conflict it is more than likely that gold prices will begin to subside. Until then, we expect to gold hover around the $1,900 level with upside risk in the market. 

The dollar is also moving higher and will have an impact on gold prices moving forward. The price of gold tends to weaken as the dollar gets stronger and the dollar is poised to gain strength in the near and long-term. While the implosion of the rubble is also having an impact on the dollar market, it is the inflation outlook and the FOMC. Inflation accelerated to a new high over the past month and points to aggressive action by the FOMC. The market is pricing in only an 8% chance of an aggressive 50 basis point interest rate hike and we think that is too low. Regardless, there is a very high probability of at least four 25 basis point hikes by June and we will not be surprised to see more. 

Cryptocurrencies Bottom, Come Into Focus As Banking Alternative 

Cryptocurrencies like Bitcoin (Cryptocurrencies: BTC) and Ethereum (Cryptocurrencies: ETH) were in a downtrend until very recently but are now putting in a bottom. The bottom is consistent with prior support levels for the market so no surprise there, the surprise is that activity is being accelerated by the Ukrainian crisis as both Russians and Ukrainians flood into the market. Because cryptocurrencies do not rely on SWIFT or other mainstream financial vehicles it is a viable alternative to traditional currency. Price action in Bitcoin, the world’s largest cryptocurrency by market cap, rose at least 9% in recent trading to confirm support at a key level. This move is supported by the MACD and stochastic indicators as well and they suggest a reversal in price action is in process.