Fool's Gold Report: Crimean Conflict Sends Metals Soaring

The escalating conflict between Russia and Ukraine had dramatic effects on financial markets across the globe, with stock markets generally taking it on the chin, but commodities markets performing quite well. That held true for precious metals, with April gold futures climbing $29 per ounce to $1,350, while May silver futures gained a less impressive $0.24 per ounce to settle at $21.49. Those jumps led to a 2% gain for the SPDR Gold Shares (NYSEMKT: GLD  ) and a rise of 1.3% for the iShares Silver Trust (NYSEMKT: SLV  ) , and the Market Vectors Gold Miners ETF (NYSEMKT: GDX  ) split the difference by gaining 1.6%.

Metal

Today's Spot Price and Change From Friday

Gold

$1,351, up $23

Silver

$21.41, up $0.18

Platinum

$1,454, up $12

Palladium

$746, up $6

Source: Kitco. As of 5:30 p.m. EST.

What's next for gold?
It's tempting to blame the entirety of today's gain for gold on the Ukrainian situation, as an overall flight to safety occurred throughout the markets. Treasury bonds and the U.S. dollar joined gold in rising, while stocks and other risky assets generally declined.

Image sources: Wikimedia Commons; Creative Commons/Armin Kubelbeck.

But there were other trading-related reasons for gold to rise. A report from the Commodity Futures Trading Commission showed that large speculators in the gold market boosted their overall net-long position to its highest level since February 2012. In many cases, these large firms were simply covering short positions, but there were also some new bullish positions included in the mix. The price action in silver was relatively similar, while platinum-group metals had mixed views among large speculative traders, as did copper.

As a result, even if tensions ease between Russia and Ukraine, gold won't necessarily fall back. As long as investors believe that the economic impact of geopolitical issues could spur the Fed and other central banks to provide lax monetary policy well into the future, precious-metals prices will have some natural support.

A quiet day for miners as Molycorp reports
Meanwhile, among mining companies, most gold stocks took the rise in bullion prices in stride, with the biggest companies rising as much as 2%. Silver stocks were similarly muted in their responses, with miners taking a back seat just as silver bullion did compared to gold.

But after the bell, Molycorp (NYSE: MCP  ) released its earnings report, which included a narrower adjusted loss than investors had expected, but revenue dropped 17% from the third quarter. Even though sales volumes for the full 2013 year soared 42%, the poor pricing environment led to only a minimal 5% rise in dollar revenue. The stock was volatile in after-hours trading, initially gaining ground but then falling to a 3% loss as of 6:30 p.m. EST. Molycorp will have a conference call tomorrow morning to discuss the results and give investors more information about the company's future.

In general, gold investors need to keep an eye on Russia and Ukraine, but they also should keep looking at the other factors that have helped support gold prices so far in 2014. As important as geopolitics are to the gold market, investors ignore other influences on gold prices at their peril.

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  • Report this Comment On March 04, 2014, at 11:23 AM, TigerPack1 wrote:

    Palladium and platinum starting to really move today.

    Palladium is largely supplied by Russian and S.African mines to the rest of the world. Palladium is already in a mine supply deficit, meeting demand with increasing recycling efforts the last few years. The marketplace is correctly beginning to wake up to the fact that Russian supplies will be curtailed with the Ukraine intervention thing. Either Russia stops sending metal to the West to retaliate for new economic sanctions on them, or the West puts trade restrictions on their import from Russia.

    The other kicker for palladium right now is the large scale S.African mine closure and strike situation taking place in February and March. Several reports say palladium and platinum resources that were stockpiled before the strikes began are nearing exhaustion. We could witness a rare situation where almost new mine supply exists for palladium users in a month or two! Since palladium and platinum together will have supply issues from the strikes soon, there will be no easy substitute of one for the other. In the past if one was in a shortage situation, the auto makers and others that need them to meet safety and clean environment standards (that are expanding in use even in China and India) could substitute the other through slightly different catalytic converters.

    http://en.wikipedia.org/wiki/Catalytic_converter

    Palladium supply and inventory levels are incredibly small, so either a supply shock or large demand increase has historically led to oversized jumps in price. We may have reached an inflection point where palladium begins to skyrocket.

    In terms of platinum, it should start to run higher from the S.Africa strike situation, its precious metals investor hedge characteristics like gold and silver when the U.S. Dollar tanks soon, and its low relative price to other commodities especially gold.

    I personally own Stillwater (SWC) and a little position in North America Palladium (PAL) in preparation for the big moves in the PGM that appear nearly certain (at least to me) in 2014. They are the only palladium and platinum mine producers outside of Russia and S.Africa of any significance. I also own (PALL), the direct palladium metals ownership ETF.

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