Gold Investors Will Have To Watch Ukraine Closely

Kiev-Ukraine (Aug 16)  The Ukraine-Russia crisis is drawing down. Gold bugs take note.

In some respects, the Ukraine variable appears to be improving, particularly after this mornings Interfax report citing European Union Ambassador to Moscow Vygaudas Usackas repeating word that Brussels is ready to cancel sanctions on Russia if the situation in Eastern Ukraine stabilized.

“When clear results in terms of stabilizing the situation in eastern Ukraine appear…the E.U. will be ready to consider the issue of cancelling the sanctions,” Usackas was quoted saying.

This is no surprise, but the more the market hears this the better.  Back channel dialogue between Russia and counterparts in the E.U., primarily Germany, which is dependent on Russian natural gas imports, have been working on brokering a deal to put an end to civil unrest.  The West believes Russia is fomenting a civil war in order to make the new pro-West Ukrainian government look incompetent.   Russia’s government claims it is not funding pro-Russia separatists in Ukraine, but Washington and Brussels think otherwise.

Moreover, European leaders may be willing to hand Russia the former Ukrainian peninsula of Crimea, which it annexed on March 17 following a vote by the autonomous region to secede from Ukraine.  Such a move would be dependent on Russia’s ability to put a swift end to fighting in Ukraine cities near its border. Washington has said that it was moving in lockstep with Brussels on sanctions and is unlikely to challenge it with regards to Crimea.

The Ukraine-Russia fiasco mostly effects Russian securities. But it also affects gold prices.

When the Interfax headline crossed the news wires at 07:57 EST, it immediately led to a nearly $20 decline in gold from $1310 to $1290.

Usackas’ statement follows growing evidence that E.U. members are concerned about the economic impact sanctions will have on their own economies. Russia recently banned food imports from there.

Hungary’s Prime Minister Victor Orban said last week that the sanctions policy “causes more harm to us than to Russia.”

European leaders are trying to persuade countries within their sphere of influence, mainly Turkey and Egypt, to avoid exporting food items to Russia.  Clearly, European agribusiness does not want to lose long term relationships with the Russians. But Russia is already moving on, mainly to Brazil and New Zealand, for animal proteins once supplied by European companies.  After all, Russians still have to eat. The long-term economic effect of existing sanctions are a concern in corporate boardrooms across Europe.

Europe has always been divided into different camps over sanctions, notes a Reuters dispatch from Wednesday. Britain, France, Poland, Sweden and the Baltics are in the hawkish camp, while countries such as Greece, Bulgaria and Austria are more reluctant to sanction.

Source: FORBES