As tensions escalate overseas, gold prices continue to firm, with more investors flocking toward the safe-haven asset. Last Tuesday, June 6, a currently unknown entity blew up a major dam near a power station in Ukraine, threatening the nearby nuclear power plant and thousands of residents who call the area home. The explosion occurred right on the front lines of the Russia-Ukraine war, leading Russia to suspect that Ukraine caused the disaster as the primary flood damage destroyed the Kakhovka dam on Russia’s side of the controlled area.
Neither party has yet to confirm or deny causation behind the incident, though one thing is clear: geopolitical tensions are escalating. Following the catastrophe, over 16,000 people had to evacuate their homes from the water damage. Current information from U.S. government intelligence leans toward Russia as the culprit, though the attack still remains unclear.
The collapse of the dam has now threatened Ukraine’s drinking water supply. The nation has already thrown $60 million toward the issue. To make matters worse, the country’s energy company believes the nuclear power plant could also be at risk due to the low water levels required for cooling turbines.
Ukrainian President Volodymyr Zelenskyy described the situation as a “Russian terrorist attack” and an “ecological bomb of mass destruction.”
Of course, Russia has denied any involvement in the attack.
All eyes have been fixated on this situation and how it will impact the marketplace in the coming days. Tightening geopolitical tensions typically add to safe-haven buying, giving rise to assets like gold. If the situation worsens with the collapse of Europe’s largest nuclear power plant, the entire globe could be looking at an enormous catastrophe affecting nearly everything.
Following what seems to be a significant unfolding of events in the Russia-Ukraine war, gold last spiked in price by $5.10 per ounce to $1,979 per ounce on June 6.
At the same time, U.S., European, and Asian stock markets remained mixed over the situation. Nymex crude oil prices are falling to weaker lows of $71.75 a barrel, while the U.S. dollar index holds modest, steady grounds. Most of the marketplace by now has noticed oil’s lack of ability to spike despite Saudi Arabia’s announcements to cut oil production in July by 1 million barrels a day.
Saudi Arabia’s announcement shocked most of the marketplace, and yet, Nymex crude oil prices remain just about exactly where they were before the release came out. At the same time, the benchmark ten-year U.S. Treasury note yield is offering 3.704%.
Given all these factors, gold maintains the near-term technical advantage despite the choppy trading marketplace. Wyckoff places the next upside price objective at a $2,000-per-ounce solid resistance line. The near-term downside low objective would be to push the prices of futures with technical support of $1,949.60.
First resistance following these objectives hit $1,985 before reaching $2,000, while downside support leveled at $1,970.30 before hitting a low of $1,953.80 per ounce.
With June’s upcoming Federal Reserve meeting looming in everyone’s minds, we can expect a bit of volatility in the upcoming days. An interest-rate pause is the top expectation, given recent comments from committee members. The pause may only be temporary, but it would likely create a positive buying environment for ideal performance boosts.
Another major factor affecting gold prices right now is central bank buying. Typically, central banks only contribute to a small portion of gold demand, but since breaking the record for central bank gold purchases in 2022, that demand percentage has significantly grown. Now, analysts are carefully watching each central bank’s purchase to see if 2023 will hold up to last year’s record levels, and so far, it’s on track to.
The first quarter of 2023 broke the record for the most central bank gold purchase for a first-quarter report on record. The previous record was from 2013. Based on previous data, central banks typically start the year off slow, then purchase more by quarters three and four.
Given this year’s record-breaking start, we could see enormous purchase figures during the next few quarters. Between the high levels of central bank demand, potential interest rate pauses, and uncertain geopolitical tensions, gold currently has the perfect environment for growth. Depending on how everything plays out, we could see prices hold well above the $2,000-per-ounce line or even $2,200 per ounce going into 2024, according to certain analysts.
Moving forward, analysts will likely need to monitor Fed actions and marketplace responses to determine next steps. As always, investors should consult their financial advisors before making any portfolio decisions.