The precious metals market is in a tug-o-war between the Far East and West, sending prices on a roller coaster ride. Following the result of the referendum in eastern Ukraine, the value of gold plummeted to $1280, but increasing unrest saw the yellow metal gain $25 in early trading before closing at $1295.70 on Monday.
With mounting tensions in Ukraine, traders in Europe and the United States are fearful violence amongst rebels may spill over to a larger military intervention between Russia and NATO, whilst traders in the Far East and investing on the basis of a strengthening global economy.
The indecision on the shop floor is due to uncertainty over what course of action Western officials will take on Russia. Heads of state have accused Vladimir Putin of manipulating the crisis in eastern Ukraine and believe the referendum in Donestk and Luhansk is an attempt to annex the region Crimea-style.
Geopolitical mind games
Last week, Putin attempted to distance himself from the crisis by asking rebels to postpone the referendum. The message was ignored and an intent of self-rule was declared.
The desire to be independent was short-lived and within two days militant leaders in Donestk are pleading with Putin to protect them and absorb the region with Russia. Luhansk will no doubt follow suit. Western officials had already called this move and are preparing to issue stricter sanction on Russian officials.
The Ukraine government has labelled the controversial referendum as illegal and despite the people voting overwhelming for independence, Kiev is not prepared to give in to the Kremlin so easily.
Reports of 15,000 troops deployed to the east has raised concerns amongst traders which resulted in the gold charts spike. NATO commanders have stoked the fire by suggested they may have to permanently station troops in Easter Europe.
Unpredictable gold market
Precious metals is a volatile market at the best of times, but now traders are having to predict which way to move on the whims of political leaders and military commanders. Early trading in the Far East saw gold prices slip as investors backed Asian shares and the dollar on the back of positive economic data.
Equities also performed well in India following the likely election victory of the business-friendly, Bharatiya Janata Party (BJP) who are expected to spur the economy. It is also hoped gold levies will be dropped to increase consumer demand.
On Monday, investor sentiment was with currency as the SPDR Gold Trust recorded a huge outflow of gold-backed exchange-traded funds. The SPDR is a good indication for global cues due its size. By the time Wall Street headed into the afternoon, sentiment had switched back to commodities and gold rallied.
Whilst ever geopolitical tension remain tense, the precious metals market will remain on a rollercoaster. EU officials are set to hold crisis talks in Ukraine this week, but with neither side prepared to roll over, a resolution will not be quick. To avoid disappointment on the best gold deals, a wise move for investors is to buy gold now before prices become unaffordable.