The Russia-Ukraine tensions didn’t help gold last week as much as most believe, and could hurt it more than most now imagine.

February 14, 2022

Dear Fellow Investor,

Gold soared over $30 on Friday, prompting some gold bugs to cheer on social media…and some gold bears to chalk the entire move to the Russia-Ukraine worries.

Both camps were wrong to some extent.

First, let’s examine the bear case. They believe gold’s big move on Friday was due entirely to the U.S. State Department news conference warning of an imminent Russian invasion of Ukraine.

This is a popular view, but it ignores the fact that gold had already jumped about $14 before that news conference. Now, traders might have sensed something coming, but gold has been rising in fairly consistent fashion since the late-January lows.

An impressive rebound was already in progress — and one that had been successfully fighting headwinds like hawkish Fed rhetoric (not to mention St. Louis Fed President Jim Bullard’s apparent transformation into an ultra-hawk), soaring Treasury yields and dollar strength.

That gold was rising in this environment was extremely impressive. Add in the fact that it broke decisively through the resistance at $1,835 and was on the verge of a “golden cross” (since completed, with the 50-day moving average rising through the 200-day), and the future looked bright for the yellow metal.

Then, of course, came the Russia news on Friday that catapulted gold up to $1,860 and sent gold bugs cheering.

And here’s why they’re wrong: The Russia kerfuffle wasn’t driving gold’s rally in the weeks before Friday’s surge, it could now derail that move.

That’s because a large segment of traders are crediting this geopolitical brushfire for gold’s rise. And thus, when it eventually calms down, they’re going to sell the metal in reaction.

It won’t matter much over the long term, since the monetary fundamentals are still so much in favor of gold.

But over the short-term, it presents a risk that investors need to recognize.

Geopolitical issues never drive consistent, long-lasting moves in gold, and those investing on the basis of such events almost always end up holding the bag in the end.

You should already be well-positioned in the metals and mining shares based on the powerful monetary drivers. If so you can afford to sit tight and let this drama play out…and I strongly advise you to do so.

All the best,

Brien Lundin
Editor, Gold Newsletter
CEO, the New Orleans Investment Conference