Is the long-term upside move in gold over?

Today was an absolute game-changer. Given that the recent ascent in gold to just under the record high of $2088 was absolutely news and headline-driven, changes in those headlines will have a dramatic and profound impact on the direction and price gains or losses in gold.

The President of Ukraine, Volodymyr Zelensky, said he is open to a compromise with Russia. That single statement had a profound impact on multiple asset classes. It resulted in U.S. equities having a strong rally with the Dow Jones industrial average gaining 653 points or 2%. The NASDAQ composite gained 3.58%, and the S&P 500 had a net gain of 2.57%.

Crude oil tumbled over 15% after reaching a 14-year high yesterday. Crude oil futures lost $14.17 today, a decline of 11.46%, and are currently fixed at $109.53 per barrel.

The safe-haven assets such as gold and the dollar also sustained strong price declines. The dollar lost 1.12%, and the dollar index is currently fixed at 97.97. Gold sustained a strong selloff and as of 5:15 PM EST, the most active August futures contract has declined by $47.60, or 2.33%, and is currently fixed at $1995.70. Silver lost 3.1%, and after factoring in today’s price decline of $0.84, it is currently fixed at $26.06.

In an exclusive interview by the German newspaper “Bild,” the Ukrainian President acknowledged that he is open to a compromise to end the war between Russia and Ukraine.

In this interview, President Volodymyr Zelensky said, “The question here is not what I can give. In every negotiation, my goal is to end the war with Russia. And I’m also ready to take certain steps. Compromises can be made, but they must not be a betrayal of my country. And the other side must also be willing to make compromises - that’s why they’re called compromises. This is the only way we can get out of this situation. We can’t talk about the details yet.”

It was this interview that caused many markets to pivot from bullish to bearish, as seen in gold, the dollar, and crude oil. It also caused U.S. equities to pivot from bearish to bullish.

So, the question becomes in the case of gold, “has the rally in gold concluded?” The short-term answer is that it is very likely that we will see gold continue to drop in price as long as there is hope that a peaceful resolution can be accomplished through negotiations between Russia and Ukraine. However, the long-term answer is quite different.

This is because the recent climb in gold pricing was based on the geopolitical tension caused by the crisis in Ukraine as well as inflationary pressures at a 40-year high with the CPI for January currently at 7.5% when compared to a year earlier. Tomorrow the government will release its most current CPI index data and currently, analysts polled by various news organizations predict inflation will rise from 7.5% to 7.9% year-over-year. With the recent rise in crude oil pricing and food, there is almost no possibility or scenario in which inflationary pressures have declined from January to February.

Gold has moved on two major issues, the war in Ukraine and spiraling inflation. Higher inflation levels would be highly supportive of gold and make it likely that after this correction, it will return to rally mode and exceed the record high of $2088 achieved in August of 2020.

As a side note, we will include the interview with Kitco News’s David Linn once it becomes available. This interview was recorded this morning March 9, 2022. We will send out another email letting you know that the interview is up and available for viewing.

Wishing you as always good trading,