Gold and Silver Fall On Putin Promise

Trader sentiment returned to equities again yesterday as Russian Premier Vladimir Putin gave assurances he will not divide Ukraine. As a consequence gold and silver prices are in decline – despite analysts expected prices to climb this week in the face of US and EU sanctions against Russia.

The saving grace at the moment is that the sanctions are only targeting individuals who are known to have pro-ties with Russia – former Ukraine President Viktor Yanukovych is a primary target. But what will these sanctions achieve?

Given the sanctions are only against certain individuals, they are not likely to effect the stock market a great deal, but if the sanctions are pushed too far start pressing the wrong, Russia could easily take the decision to pull its $120bn worth of investments in US-dollar backed funding.

Political tension

There is still a lot of political tension between the West and Russia and Putin is threatening sanctions of his own – although has not stated what yet. Putin has already demonstrated with his headstrong handling of the Crimea crisis that he will not bow to political pressure. If the US push the Russian Premier too far, investors in equities should fear the worse.

Given that market sentiment has returned to equities, traders do not seem concerned about the threat Russia hold over the safe future of the US dollar.

Of course, Russia would not pull the plug without prior warning so until that happens equities will surely strengthen.

That means however, that gold and silver will begin their predicted fall, and with more positive economic data coming from the US the twinkle is back in the eyes of traders. The global economy is showing signs of health – although a potential credit crisis in China may dampen early spirits.

Gold started opened on Tuesday at $1367.50, but by mid-afternoon on Wall Street had dropped more than $7 to $1360.10. With the Federal Reserve set to release more data later today, positive news will see precious metals continue their decline.

Fed chief, Janet Yellen is expected to announce a further $10m trim of QE to cut monthly spending to $55bn, and oil inventories and mortgage applications will give a strong indication of how the world’s leading economy is shaping up.

Positive economic data from the US will surely start a global trend to lower the prices of gold and silver. Should this be the case, it will come as welcome news for investors looking to add precious metals to their portfolio – a shrewd move considering the next economic crisis could eclipse the 2008 banking crisis.

Metal defaults in China is an early indication of how the credit culture could collapse a currency. The early indications suggest China’s central bank is heading for disaster. One speculator is quoted as saying, “there is a huge discrepancy between what China reports and what China’s trading partners are reporting.”

A credit collapse in China will push gold prices up again and if the crisis reverberates around the world what will happen to the global economy?