Friday, February 27, 2015

Financial Comment: The price of gold is a mirror of the world’s ignorance

Instability caused by Ukraine-Russia war not reflected in price

The price of gold usually rises when there is global instability or war. Throughout the last 12 months, the Ukrainian drama unfolded with thousands dead and heavy fighting, which involved two large regular armies and by intensity arguably surpassed everything the world had seen since the Iran-Iraq war. Many observers and analysts have argued that the Ukraine-Russia war is a threat to global and especially European security.

And yet, this war had almost no effect on the price of gold. Over the past 12 months, gold has dropped by almost 5% in price to around $1,200 per ounce. In a more recent instance, market analysts noted that, in mid-February, the price of gold fell and global stock markets rose despite heavy fighting around Debaltseve, which violated the ceasefire agreed upon in Minsk.  

Obviously, Ukraine is a regional economy which, unfortunately, had not grown to a prominent global place even before the war (55th globally in 2013 as compared to, say, Greece’s 43rd place). The lack of any effect on the price of gold stemming from this conflict can also be explained by the low effect of the sanctions on Russia on the global economy. However, this ignorance of the war in the middle of Europe resembles the West’s attempts to stay out of the conflict politically and militarily. At the same time, if the West was more decisive in its help for Ukraine, the war would probably have better prospects to finish more quickly and with less casualties. In the end, the effect on the price of gold would be the same.

By: Ukrainian Credit Union Limited

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