Gold hits 8-month highs as the war drums continue to beat for now

Overnight Headlines

*Ukrainian President whipsaws markets with “ironic” attack date comment

*Fed governors split on pace of monetary policy tightening

*ECB’s Lagarde repeats pledge for gradual monetary policy shift

*Gold hits eight-month high on safe haven appeal

*UK unemployment keeps steady and in line at 4.1%

US equities fell on Monday though gyrated heavily on Ukrainian geopolitical comments throughout the day. The sell-off was most pronounced early on in the European session before a recovery. Tech and growth led the gains while financials and energy were the laggards. The Nasdaq was unchanged with the S&P500 0.4% lower and the Dow losing 0.5%. Asian markets are mixed with China in the green as the PBoC injected medium-term loans into the system. European markets have opened modestly lower and US futures are mixed.

USD edged higher for a third straight day to a two-week high. EUR slipped to its lowest since the start of February but is trading around its 50-day SMA at 1.1327. GBP continues to track sideways ahead of its mid-month data dump this week, with the 100-day SMA at 1.35 so far proving strong support. USD/JPY was mixed as investors weighed higher Treasury yields against safe haven yen demand. AUD and NZD were pressured by risk aversion but managed to halve losses on the more positive geopolitical comments.

Market Thoughts – “Buy on the sound of gunfire…”

There are many derivatives of this phrase so forgive us for your exact favourite or correct wording. For those unaware, this is a classic contrarian statement (from the 19th century and Baron Rothschild?) who saw opportunities in the worst market conditions. It supposedly ends with “sell on the sound trumpets” when peace eventually prevails.

Financial markets have little sense of direction as everyone waits to see which way President Putin moves his 130k troops and armaments currently positioned on the Ukraine border. Oil and gold are bid with headline risk in full effect. Meanwhile, markets are already generally roiled by high inflation and the intense focus on the next Fed steps with more Fedspeak and the FOMC minutes to focus on in the coming days.

Chart of the Day – Gold hits new highs

The safe haven qualities of gold come to the fore in times of extreme volatility and conflict. While this may be short-lived unless we get protracted fighting, there are additional factors which may support the precious metal. Rampant inflation with oil nearing $100 while at the same time hurting global growth and reducing the potential number of future rate hikes may help.

Gold is up ten days over the last twelve and has taken out the November high at $1877 this morning. Prices are now overbought on the daily RSI and through the upper Keltner channel. Near term support is $1865 and then $1834. The major upside target for bugs is $1916, the high from May last year.

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