Crimean referendum: Gold up, up and away

Frankfurt (Mar 14)  The Crimean dispute between Ukraine and Russia as well as Crimea and Ukraine have underpinned bull rally in gold futures bringing the lustre back to the yellow metal. The commodity which reached $1900 levels in 2011 also touched the bottom of the abyss last year and is now trading at six month highs at $1369 levels.

In fact, last year, it was feared that gold miners may even have to cut short their production and mothball a few mines, given the price drop. Then came Ukraine turmoil and the tapering effect of Quantitative Easing was cancelled to a large extent when Russia decided to send troops to Crimea.

Now the referendum on Crimea’s secession from Ukraine is scheduled for Sunday. The following day, Monday next week, would also see the EU meeting on measures to be adopted against Russia, economic and political. The threat of economic and trade sanctions is thus more pronounced.

One has to have no doubt that Crimea shall overwhelmingly decide to surgically remove it from Ukraine. Then it would become an independent state and would subsequently request Moscow for entry into the Russian Federation. The West –US and EU—have already declared the referendum illegal.

The constitution of Ukraine, stipulates that if the country has to be split, a national referendum should be carried out. In case of Crimea, it is a foreign power, Russia, which is conducting the referendum on Ukrainian soil and that too locally. No wonder, the Russian view is blasted worldwide.

So what consequence would the referendum effect on gold futures?

If the Crimeans vote in favour of referendum, we still do not know whether that would provoke a military misadventure from West. Unless, the situation in Crimea deteriorates to such an extent that a bloody civil war breaks out or if the Ukrainain troops come under the line of fire of Russia, escalating the situation, a Western military option is ruled out.

For Russia, annexing Crimea will not be a cakewalk. If the Tatars and Ukrainians in Crimea rise up in a revolt against Russia and pro-Russian Crimean people, Kremlin, citing the referendum may choose to interfere militarily.

If that be the case, gold futures can shoot up by leaps and bounds. Single bullet fired from a Russian Kalashnikov can hit the bears on head and let gold bulls thunder past in a rally.

Even otherwise, Russia will definitely have to face sanctions from the West. And if the sanctions are crippling in nature, Russia, a BRIC nation would cease to be the engine of growth as is widely held in case of BRIC countries.

Again, this can cause widespread economic uncertainty in a planet rising from the ashes of Great Recession.

Gold, no other way you can go, but North.

Source:  Commodity-Online