There are major positives from Russia and Ukraine, why does the price of gold not fall but rise?

On Tuesday (March 29), a positive signal came from the negotiations between Russia and Ukraine. It was reported that the meeting between the presidents of Russia and Ukraine could be held at the same time as the initial signing of the peace treaty between the two countries. The fall in risk aversion led to a fall in gold prices. It rebounded at the end and closed at $1,922.04 per ounce.

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Recently, Russia and Ukraine held a new round of talks. The Russian Ministry of Defense stated that it would significantly reduce military activities near Kyiv and Chernihiv to create conditions for Russia-Ukraine dialogue. It is believed that Ukraine will also respond accordingly. One-step negotiation to create conditions. The decision will be explained to Putin after the delegation returns to Moscow.

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Po, an adviser to the Ukrainian President's Office, said at a press conference that in-depth consultations are currently underway on some important issues, the most important of which is to reach an agreement on Ukraine's international security guarantees, because with this agreement, Ukraine will be able to rely on its own The war needs to end.

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Judging from the statements of both sides in the conflict in Russia and Ukraine, it is clear that there is progress in the sense of compromise to promote the conclusion of a ceasefire agreement. The war has caused great harm to both sides. It is the common will to promote peace talks and stop the war, but the United States The remarks are very intriguing, including the repeated creation of an atmosphere for the Russian invasion since February 16, the suspension of Russia’s military activities near Kyiv and Chernihiv, and the creation of conditions for the Russian-Ukrainian dialogue. Such events are also interpreted by the US military as "withdrawal of troops" is false, redeployment is true".

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Under the game of interests of all parties, the trend of the gold price has a strong political attribute. After all, once Russia and Ukraine reach an agreement, it will have a series of impacts on the energy relations between the EU and Russia, which may not be in the interests of the United States, including in the interest of the United States. After the news came out, the United Kingdom immediately came out and stated that the sanctions against Russia would not end because of the end of the war. U.S. Treasury Undersecretary Wally Adejemo said that the U.S. and its allies plan to impose new sanctions on more sectors of the Russian economy, and the "spoiler" of Western countries has further complicated the situation in Russia and Ukraine, and the price of gold is still affected by geopolitics. support.

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On Friday, the Central Bank of Russia announced that it will restart buying gold from banks and will buy gold at a fixed price of 5,000 rubles per gram from March 28 to June 30. This news may not sound exciting enough, but if you look closely, you can find a lot of things.

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The announcement comes just days after the West had been enacting multiple laws to try to stop the Russians from selling their gold. The G7 believes that sanctions will hit Putin hard enough that Putin will be forced to sell gold to evade sanctions, but in reality, "external currencies" (those that exist outside the financial system, such as commodities and bitcoin) will trump "Internal money" (the money that exists in the financial system), and the flow of commodities is out of their hands.

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In the current financial system, the power of the central bank depends on the ability to create credit and sell it to commodity producers at positive interest rates. In an efficient market, producers of basic commodities should all have very low profit margins. And the more specialized the commodity, the greater the chance of making a profit. And Russia is a commodity-producing country that can expose weaknesses in the system. That's why the ruble was pegged to gold, which also led to a crazy appreciation of the ruble against the dollar

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The ruble has started to strengthen ahead of the progress of Russia-Ukraine talks on Tuesday. A $1,550 per ounce gold (100 ruble to $1) scenario would imply a ruble-to-dollar rate of around 75, which incentivizes those who hold rubles to keep holding, and those who need them at current levels price gouging. This creates a positive incentive loop that brings the ruble back to pre-war levels, and then market effects kick in and ruble demand will become structural based on Russia's trade balance.

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On top of that, Russia has said that “friendly countries” can pay for imports in bitcoin. Recently, Bitcoin has indeed continued to rise. That said, there is now a complete gold-bitcoin-ruble interconversion system that completely and completely cuts off reliance on the Western financial system, while also reducing their ability to destroy economies through the inflow and outflow of hot money.

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Due to the high inflation in the United States. Now that Wall Street is constantly adjusting its expectations for the Fed's next move, it also has to face the question of whether controlling inflation can achieve the effect of a soft landing and prevent the economy from falling into recession. Under normal circumstances, the Fed implements gradual interest rate hikes, with each rate hike by 25bp. But now, U.S. inflation has reached a nearly 40-year high, and it's not "normal." You know, about a year ago, Fed officials also hinted that they would not raise interest rates until 2024, and now the market is open to raising interest rates by more than 6% in 2022.

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On Tuesday, the U.S. 2-year Treasury yield surpassed the 10-year yield for the first time since 2019, albeit briefly inverted, but further reinforced the market's view that a Fed rate hike could lead to a recession. In 2019, the U.S. bond yield curve inverted in August, and the last sustained inversion occurred in 2006-2007.

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Obviously, the Federal Reserve has rapidly transitioned from a role of "stepping on the gas" to a role of "stepping on the brakes". Foreign media commented that the harder the Fed hits the brakes, the greater the risk of an accident that could disrupt financial markets, the real economy, or both.

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Higher short-term yields than long-term yields are anomalous and signal slower growth. The closely watched 5-year and 30-year yield curves also inverted this week, something that hasn't happened since 2006. So far, the 3- and 10-year, 5- and 10-year, 5- and 30-year, and 20- and 30-year yield curves have all inverted.

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In the evening, the market will usher in the ADP employment data known as "small non-agricultural". If the employment data does not perform well, it may have an impact on the Fed's rate hike process, so be sure to pay attention.