Top Stories This Week: “Fear Factor” Returns for Gold, Uranium Breaks US$50
The gold price has continued to experience volatility after last week’s spike.
The yellow metal was in the US$1,910 per ounce range on Monday (February 28) before rising to nearly US$1,950 on Tuesday (March 1). It pulled back mid-week, but then finished Friday (March 4) at the US$1,970 level.
The Russia/Ukraine situation of course remains key for gold, but with events progressing rapidly it’s tough to get a sense of what’s coming next. This week has brought intensified conflict between the two countries, as well as increasing number of sanctions on Russia, including the exclusion of some banks from the SWIFT system.
I asked Will Rhind of GraniteShares if these fairly large ups and downs in the gold price are likely to continue, and he emphasized that the crisis in Europe has brought gold’s safe-haven status to the forefront. While inflationary pressures have been providing support for the metal, current events have reignited gold’s “fear factor.”
“This whole crisis in Europe … has really brought back the fear factor that I think has been missing from the gold market. So although gold prices had started to creep up on the back of inflationary pressures that we’re seeing all over the economy, we hadn’t seen that fear factor in the market since COVID really started” — Will Rhind, GraniteShares
Will also pointed out that gold isn’t the only precious metal that’s being impacted by Russia’s attack on Ukraine. He noted that Russia is the world’s largest producer of palladium by far, accounting for about 40 percent of global supply, in addition to the second biggest miner of platinum.
These metals are used in catalytic converters, and Will said concerns about supply chain disruptions are already being reflected in prices. Both palladium and platinum have seen increases in recent weeks, and Will said we could be looking at “materially higher prices” for the two metals moving forward.
With Will’s comments in mind, we asked our Twitter followers this week to look beyond gold and tell us which commodity they’re watching most closely in light of Russia/Ukraine circumstances. By the time the poll closed, but most respondents had chosen uranium, with oil and gas in second place; platinum and palladium were third.
Speaking of uranium, prices have risen, even surpassing US$50 per pound. However, David Talbot of Red Cloud told me that may have more to do with the Sprott Physical Uranium Trust (TSX:U.UN) than with the invasion.
In a Monday conversation, David said the Sprott trust had raised about US$100 million in the last several trading days, enough to buy more than 200 million pounds of uranium.
It is approved to raise another US$2 billion beyond that, and David thinks there’s potential for the vehicle to take another chunk of physical uranium out of the market.
“It does seem apparent that many investors believe this Russia/Ukraine situation will lead to higher uranium prices. That said, I don’t think there is a lot of risk premium built into the current spot price. The price appreciation looks to be more a response to Sprott buying” — David Talbot, Red Cloud
That’s not to say Russia/Ukraine events should be ignored. Eight percent of US electricity is generated by uranium sourced from Russia, Kazakhstan and Uzbekistan, and while David isn’t expecting supply disruptions, he does think payments could become a problem due to the SWIFT restrictions on Russian banks.
“I think payments for deliveries now is becoming the big concern, and that doesn’t consider whether Russia will want to supply uranium or enrichment services to the west” — David Talbot, Red Cloud
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Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.
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