Gold and silver set to shine as EU revs up sanctions on Russia
New York (Aug 31) Gold and silver prices will likely head higher this week as the traditionally strong month of September is turbo-charged by the slide towards EU recognition of the war in the Ukraine, with Russia now being told to back off by next weekend or else.
Such threats have not worked in the past. But whether the 28-nation bloc can agree to anything strong enough to really deter Russia from its mission in Ukraine is doubtful.
New sanctions
Measures proposed range from taking away the hosting of the 2018 World Cup to switching off the SWIFT system of banking transfers. The EU will consider the immediate damage to its own business interests and also the probable Russian response, a crippling ban on EU car imports, for example.
However, in a month when Europe in remembering the start of the First World War exactly one hundred years ago there are some alarming parallels with the current slide into chaos.
In 1914 almost nobody expect a world war. The nations involved were trading successfully and culturally closer than they are now. Then a system of two competing military alliances brought war after the crown prince of Austria was assassinated in Serbia and Austria attacked Serbia in revenge, and Russia came to the aid of Serbia.
The system of alliances soon aligned the nations of Europe for the international mutual suicide pact known as World War One. Ukraine is not Serbia though it is not so far from the Balkans and also heavily under the influence of Russia.
Ukraine not in an alliance
Ukraine’s appeals to NATO is like Serbia reaching out to Russia for support in 1914 whose allies then comprised France and Great Britain. Austria was allied with Germany. The Kaiser had to be recalled from holiday as he had said war was impossible and stuck to his vacation plans.
But crucially NATO has no mutual defense treaty with Ukraine so this is not August 1914, or not yet. The problem is that dividing Europe back into two heavily armed camps does take the continent a step closer to war.
If Russia was to now successfully over-run Ukraine as Hitler did Czechoslavakia in 1938 without an adequate response then Mr. Putin might take this a a sign of weakness in respecting the NATO alliance that now protects the former Soviet Baltic states.
An attack on them would cause a war like Serbia did in 1914 with the US in the frontline rather than standing back to profit until 1917 as it did in World War One.
These are surely the lessons of history that we should be listening too now. In the First World War some 800,000 soldiers died from the UK alone. However, this is an investment and not a strategy website. We want to know what all this means for business and financial markets.
EU weakness
It is of course very bad news indeed. Pull Russian business out of an already weak EU economy and it may well collapse. This is a second eurozone crisis if you like.
Wall Street traders are not so young that they can’t remember 2011 and what this meant back then. Only this is rather more serious and intractable. Sure the ECB might have to print some money. That’s how central banks finance wars but they are not good news for stock markets or currencies.
Indeed, usually interest rates have to go up and bond prices fall in war-time economies. Gold and silver as a safe haven are almost always the only thing to gain, and the dollar too. That seems to be where we are going on this sunny afternoon in 2014, 100 years after the last catastrophe in Europe.
Source: ArabianMoney
