Natural gas, gold, and other commodities trading have been on a rollercoaster lately because of the Russia/Ukraine Conflict. Here’s what you need to know.
The Search for a Safe Haven
Ten days before the Russian invasion of Ukraine, when troops had accumulated along the Ukrainian border, assets like stocks were sinking (as they normally do when economic times are uncertain), but gold, which is a safe haven, was reaping the benefits. On the day of the invasion, gold had not been so valuable in one-and-a-half years, with April gold futures at $1,967.20. And since Russia is a major source of raw materials, commodities trading markets saw prices surge. For example, grain markets leaped higher and crude oil futures topped $100 a barrel.
Once the first week of March had passed, the US had stated their intention to cut off Russian oil imports, which lowered expectations of strong interest rate hikes on the part of the Federal Reserve. Concerns rose that the highest inflation in four decades would continue and economic growth would be impeded, and so more traders moved their eyes to gold. When the dollar rises, it tends to signify gold will lose value, but not in this case, as the US currency was at its highest since July 2020 but gold exceeded $2,000 an ounce.
And it’s not only gold. Natural gas is another commodity that has gone for a wild journey since the end of February, sinking and rising sharply along the way. Let’s look more closely at the story of gas until mid-April and also touch on the interesting topic of rose gold, otherwise known as red gold, which is often associated with Russia.
Gold
By the third week of March, the prospect of Fed rate hikes (which usually drain away enthusiasm for gold) was overpowered by fears of strengthening inflation. Spot gold was at a one-week-high of $1,963.21 an ounce. “Even the idea of a rising interest rate environment… is not enough to offset the positive pressures that we’re seeing from the inflationary tilt”, explained David Meger of High Ridge Futures. The SPDR Gold Trust, which is the largest gold ETF in the world, reached its highest peak since February 2021.
By the third week of April, hopes of a quick end to the conflict in Ukraine were low and inflation was still high, so the safe haven appeal of gold remained strong. Gold that was to be delivered in June touched $2,003 an ounce. If the battle would persist, this itself could exacerbate inflation, suggested Chintan Karnani of Insignia Consultants, when he said “Ukraine is the reason for the gold price rise”. Another point, added by Marios Hadjikyriacos of XM, was that “The crippling sanctions on the Russian central bank made it clear that forex reserves are not as solid as gold in a crisis”.
Natural Gas
Natural gas prices in the USA were up by an average of 11.61% in March compared with February, and European gas prices had risen by a considerable 72.9% on concerns Russia would cut off supplies. Early in the month, though, European gas prices dropped due to the EU’s procrastination about embargoing Russian shipments (though they did state plans to cut down by two-thirds this year). As a result certain benchmarks fell, like Dutch Futures, which lost 27%. The EU’s hesitation had to do with the challenge of replacing Russian gas with other sources. The USA, for its part, put a ban on Russian oil and liquefied natural gas, with the UK doing the same in the case of oil.
In the third week of April, gas was priced the highest in 14 years. Natural gas for delivery in May was up to $7.82 per million British thermal units, with the two main causes being late season cold weather in the USA and depleted storage levels. “Record-high prices in Europe due to the Russia- Ukraine war are also increasing demand for… shipments to the EU”, and this was “bolstering our domestic prices” in the US, explained Tyler Richey of Sevens Report Research. Richey added that natural gas seemed “very overbought”, which might signal the rally could slow, but that there were “no signs of cracks in the rally at this time”.
Times Ahead
One interesting development in March was the acceleration in sales of physical gold, with the US Mint selling 155,000 ounces of bullion coins, which was a huge increase of 73% over February. A kind of gold that often originates in Russia and is used in jewellery is rose gold, also known as red gold, which has a pink hue. Red gold is actually an alloy made up of regular yellow gold and copper, and was among the types of the metal in demand at the time. Is Russian red gold safe for the time being? “Demand should remain steady for the balance of 2022”, said Richard Weaver of Accredited Precious Metals Dealers.
As to the climate in the world of commodities trading in weeks to come, “Gold could well attract more suitors if stagflation risks become more amplified over the near term”, says Han Tan of Exinity. Natural gas prices might slow their upward movement, in the opinion of Citigroup, due to the fact that consumption will decline on the heels of high consumer costs. So if you’ve got your eyes on commodities trading as CFDs, you may want to keep one eye on the analysis charts and the other on the news for crucial updates that may rock the safe haven’s boat.