Updated: Interesting times: Putin plays gas card, SNB cuts Euro link, gold surges

Lawrence Williams
Two reports on Thursday combined to drive the gold price significantly higher as early 2015 geopolitical events accumulate.  Latest article now up on Mineweb.com – Click here to read this article and many others on Mineweb
Lawrence Williams
A supposed ancient Chinese curse, almost certainly apocryphal*, which has been doing the rounds for many years is “May you live in interesting times.” These are interesting times indeed as a confluence of geopolitical events threatens to drive the gold price ever higher. Apart from the seemingly ever ongoing Russia/Ukraine disputes, which may, or may not, involve the Russian military, and ISIL’s apparent expansion of action from Syria and Iraq, where it controls vast swathes of territory, into Afghanistan (interestingly bringing it into conflict with the Taliban) a couple of reported events today suggest the scary start to the year is continuing with a potentially very positive effect on Safe Haven demand for gold. Add substantial nervousness in the general stock markets after a steady rise over the past few years and you have a recipe for a take-off in the gold price perhaps foreseen by the Elliott Wave analysts we’ve reported on in these pages in the past.
See: Elliott Wave analyst sees big gold and silver price surge ahead

Reports on Thursday suggest that Russia may have cut off much, if not all, of its flows of natural gas through the Ukraine, thereby effectively halting supplies to a number of European nations which depend on it for a significant proportion of their domestic power. Ostensibly the cutoff is reported to be because Russia is accusing Ukraine of siphoning off supplies of gas moving via the pipeline through its territories without paying for them, but the political motives may be much stronger – or this could perhaps just be a warning shot across the bows to the EU not to extend economic sanctions – or even to drop them and the taps could be turned on again after a short ‘warning burst’ of supply disruption.

There is some doubt about the accuracy of the above report, but there is little or no doubt about the veracity of Russia’s staed longer term policy in bypassing the Ukrainian pipeline system in favour of a pipeline through Turkey.  Russia thus says that longer term it will be re-routing the bulk of its supplies to Europe via a pipeline running through Turkey, and thence to Greece and then it is up to the European nations to organise how supplies are transmitted onwards from there.

According to a statement by Gazprom CEO Alexey Miller, quoted in Russian news agency Tass, the Turkish Stream gas pipeline project is to be in the future the only route for Russia’s future supplies of 63 billion cubic metres of natural gas to Europe that is currently delivered via Ukraine. (The Turkish route is the proposed replacement for the South Stream pipeline project across the Black Sea to Bulgaria which has now been cancelled).  Miller’s statement has since been confirmed as accurate by EU Commissioner for Energy Maros Sefkovic, who has been in discussions with Miller over the matter and describes the decision as making no economic sense – as if many of the geopolitical events today make any economic sense!

Miller went on to say further that Gazprom has notified its European partners about its Turkish Stream gas pipe plans and now their task is to create the necessary gas transport infrastructure from the border of Turkey and Greece Tass reports. “They have a maximum of several years for this. This is a very tight schedule. To comply with it, work for the construction of new trunk gas pipelines should be started in EU countries right now. Otherwise, these gas volumes may be redirected to other markets.” (see Gazprom to use Turkish route to substitute Europe-bound supply of 63 bcm via Ukraine)

With Russian natural gas providing around 25% of EU energy, and the greater proportion of this flowing through the Ukraine pipeline system, this is potentially very serious for the economies (already reeling) of a number of European nations which rely to an even greater extent on Russian gas supplies. Further the reports today that Russia has turned off the Ukraine pipeline altogether suggest a further escalation which the EU is ill-prepared to cope with.
A second event today is that the Swiss National Bank (SNB) has been forced to sever the Swiss Franc’s direct link to the Euro which had seen the nation’s currency fall even more heavily against the US dollar than it is obviously prepared to live with. The SNB statement said it is discontinuing its minimum exchange rate of 1.2 Swiss Francs to the Euro, where it has been pegged since September 2011. It is also moving interest rates into even more negative territory to help try and counter resultant Swiss Franc strength against other currencies. Even so trade saw the Swiss Franc appreciate quickly against the US dollar by as much as 15%! The gold price shot up too in U.S. dollars – and even more in the Euro – at one time reaching $1260, although it had fallen back to the lower $1250s at the time of writing – still a big increase on the overnight level.

So where do we go from here? The confluence of disturbing geopolitical events continues – and we’re only two weeks into the New Year. Short covering should be coming in as traders digest the events and the gold price pattern which could drive prices even higher still. As we said at the start – Interesting Times!

*The Wikipedia comment on the ‘Chinese curse’ is as follows: “May you live in interesting times” is an English expression purporting to be a translation of a traditional Chinese curse. Despite being so common in English as to be known as “the Chinese curse”, the saying is apocryphal and no actual Chinese source has ever been produced. The nearest related Chinese expression is (níng wéi tàipíng quǎn, mò zuò luànshì rén) which conveys the sense that it is “better to live as a dog in an era of peace than a man in times of war.”

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