Putin's Geopolitical Ambitions Are A boost For USD And Gold

March 4, 2014

Fever pitched political disputes and wars make for highly unpredictable environments and the flare- up in the Crimea certainly fits the bill. It has fuelled risk in the currency markets making USD and JPY look like safe bets for scared money.

With Russia appearing at one point close to invading the rest of the Ukraine – the faithful safe haven currencies were in demand – USD, JPY and gold. Risk assets took a pounding.

But by Tuesday tensions eased as Russia withdrew troops, except in the Crimea region, and both safe haven currencies pulled back in sympathy.

Russia may well have achieved its aims. To secure control of the Crimea. The region hosts the Black Sea naval fleet and is a major Russian military asset. It no doubt feared that a pro-EU Ukraine would have threatened its ability to operate in the Black sea and the Mediterranean theatres.

From now on it could be case of sabre rattling from Western countries and little more. Though the highly charged environment could still quickly degenerate into a major global crisis. For instance, there are sizeable Russian minorities in Poland and the Baltic states.

For the time being that makes USD, JPY and gold obvious holdings for traders and investors until the situation moves towards some sort of status-quo.

Putin helps bring some shine to gold

Putin may be just getting started 

Even if the Ukraine situation does disappear from the headlines over the next couple of weeks or months it is unlikely that the world has heard the last of Russia's President Vladimir Putin and his geopolitical ambitions.

If anything success in the Ukraine will embolden Putin following a victory over Georgia in 2008, which saw the emergence of the secessionist states of Abkhazia and South Ossetia – both Russian protectorates. In Syria Russia seems to have got the upper hand over the West by managing to keep the regime of Bashar al-Assad in place.

Russia is exploiting the post-Iraq and Afghan military exhaustion felt by the Western allies. 

Similar incidents could be repeated in central Asia. Especially in countries, which have Russian minorities that need 'protecting' (Kazakhstan, Uzbekistan...). Safeguarding Russians was part of the pretext for military interventions in the Ukraine and Georgia. In effect, Putin wants to rebuild much of Russia's former sphere of influence, which crumbled when the USSR collapsed.  

It's another factor playing to geopolitical instability. Spikes in international tensions such as in the Crimea will see USD quickly come in demand.

For JPY the situation is more nuanced. A rising JPY could quickly feel the wrath of the Bank of Japan, which is determined to keep the currency weak. A prolonged period of international instability would no doubt see the Bank of Japan doing whatever it takes to weaken JPY potentially leaving traders with stinging losses.

That leaves USD and gold as favoured long-term safe havens. 

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Markets Analyst MahiFX

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Justin Pugsley, Markets Analyst for MahiFX, has over 20 years’ experience writing about markets, economics and finance. He has worked for a number of leading media organisations such as Agence France Presse (AFP), Dow Jones, Wall Street Journal, Thomson-Reuters, British Sky Broadcasting and McGrawHill.

The naturally occurring gold-silver alloy is called electrum.

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