When residents in the regions of Donestk and Luhansk vote for self-rule as expected on Sunday, the aftermath could disrupt the stock markets. The vote for independence itself will not have any affect, but the crisis could spill into civil war if the Ukraine government react with continued violence.
The value of the yellow metal had been penned for substantial losses throughout 2014 given indications of a recovering global economy, but the Ukraine crisis has helped gold prices hold over $1300 an ounce for most of the year.
In March, Russia put pressure on Kiev with the annexation of Crimea, but the division in the eastern regions is being driven by separatist rebels, described by mainstream media in the West as “pro-Russian militants.” It would appear however, the rebels want an independent state.
Western officials are concerned the proposed referendum that opened on Sunday will rip Ukraine apart and trigger a civil war. Other commentators have reported a second referendum will be held on the 18th May to vote for an annexation with Russia.
Cloak and dagger politics are at play here. Russian Premier, Vladimir Putin this week urged rebels to postpone the referendum scheduled for this weekend. The rebels ignored the plea and went ahead with the voting anyway.
Sceptics believe Putin’s half-hearted intervention was merely to distant himself from the plan to claw back eastern Ukraine into the bosom of Russia. A second referendum will provoke outrage in the west and reignite tensions that were dampened under the falling bricks of the Berlin Wall in 1989.
Putin already has the upper hand over the West as any retaliation by Europe or the United States to a second referendum will undermine their philosophy of democracy. The European Union are also eating out of Moscow hands because of their reliance on Russian oil and gas to fuel it weak economy.
The crisis has not prevented the EU and US imposing economic sanctions of pro-Moscow officials and they are threatening tougher sanctions in energy and finances. However, given one of Russia’s aims is to retire from their dependency on the US dollar, Obama, Merkel and Cameron et al are mere putty in Putin’s hands.
Russia to join forces with China
The People’s Republic of China has made no secret that they want to rival the US economy. With the weight of the debt ceiling weighing heavily on the greenback, a credit crash will render the US dollar worthless and the need for a revised default world currency.
The Chinese are already priming the renminbi for such an event. Earlier this year, the People’s Central Bank of China ceased on the opportunity to devalue the yuan when a default payment on copper ore exposed their shadow banking system.
Furthermore the Chinese has been buying huge quantities of gold since 2011. Russia added over 1000 tons of gold to its reserves between 2008 and 2013, a strategy that allows them to rebuild once investors pluck the greenback from the country.
If further violence in Eastern Europe is avoided, gold prices will fall, but if separatist rebels do push for annexation with Russia, the stock market will be rattled and gold prices will be dragged back over the $1300 an ounce price point. Buy your bullion whilst prices are reasonable.