Fool's Gold Report: Futures Hit New 6-Month Highs Before Crimean Vote

Gold is soaring on global conflict and economic worries, but will the Fed spoil the party next week? Find out here.

Mar 14, 2014 at 6:18PM
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For the fifth straight day this week, gold rose as the Dow Jones Industrials fell, with investors getting their last chance to take positions before a key referendum in the Crimean region of Ukraine this weekend. With many expecting the peninsula to attempt to secede from Ukraine and rejoin Russia, the potential for political and military tensions to rise is extremely high, and gold's gains today reflected those fears.

On Friday, April gold futures rose $6.60 per ounce to settle at $1,379, hitting their best levels in six months, while silver performed even better on a percentage basis, rising $0.21, to reach $21.41 per ounce. Those moves sent SPDR Gold Shares (NYSEMKT:GLD) up 0.7%, and iShares Silver (NYSEMKT:SLV) rising 1.25%; but once again, platinum group metals missed out on the positive day and moved lower. Mining stocks managed a mixed performance, with Market Vectors Gold Miners ETF (NYSEMKT:GDX) gaining a third of a percent.

Metal

Today's Spot Price and Change From Previous Day

Gold

$1,383, up $12

Silver

$21.45, up $0.27

Platinum

$1,464, down $8

Palladium

$771, down $3

Source: Kitco. As of 5 p.m. EDT.

What's next for gold?
A number of uncertainties in the financial markets will finally come to a head next week, and that has major implications for the price of gold. Even if news is bad, just knowing for certain that events will play out a certain way could force gold prices lower, at least in the short run.

Gold And Silver

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

Still, given the volatility of the situation on the Black Sea's north coast, election results this weekend could go a long way toward resolving which direction the Ukraine-Russia conflict will move next. Western nations are reportedly readying economic sanctions if the referendum this weekend has the same result as the Crimean parliament's declaration of independence, in which 78 out of the body's 100 members voted to leave Ukraine. Given Russia's economic importance both generally and in the precious-metals markets specifically, such moves would send tremors throughout a global economy that has already been plagued by systemic risks in the past. That could easily move gold up through the $1,400 level, and if military conflict results, precious metals could see an even bigger safe-haven trade.

Bullish gold investors will also keep an eye on China, where economic concerns are getting larger in the wake of what some see as new systemic risks of its own. China has already seen one mainland company default on its corporate bonds, and the Chinese premier said earlier this week that more defaults would occur. Although default risk has been a key driver of drops in the copper market, resulting in pressure on Freeport-McMoRan Copper & Gold (NYSE:FCX), Southern Copper (NYSE:SCCO), and other copper producers, gold could benefit from a perceived rise in financial risk.

Yet, the other wild card next week is the Fed's Open Market Committee meeting, at which monetary policy will be determined. Some gold investors hope that the Fed will stop tapering its bond-buying activity in light of troubles in the U.S. economy and elsewhere, but if the Fed keeps tapering as scheduled, then the disappointment could send prices downward. On the other hand, anything other than business as usual could prompt a big gain for gold, as well.

Next week will be especially important for gold. Given its performance so far this year, what happens in the next several sessions could define the future course of the yellow metal's movements for the rest of the year and beyond.

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Dan Caplinger owns shares of Freeport-McMoRan Copper & Gold. The Motley Fool owns shares of Freeport-McMoRan Copper & Gold. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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