Speculators Drive Gold Prices Higher on Ukraine Developments

Issues between Ukraine and Russia helped spike April Gold futures on Tuesday. Speculators bought gold as Ukraine began military drills as the Russian army tightened its hold on Crimea. Gold prices could rise further as investors wait for the outcome of the meeting between U.S. President Barack Obama. The U.S. and other western nations continue to threaten Russia with repercussions, but this has not helped to diffuse the situation. Traders seem to be positioning themselves for military action.

Despite the Fed tapering, it looks as if gold investors are going to focus on the situation in Ukraine rather than the economic fundamentals. Gold prices could even increase further if equity traders decide to pare positions aggressively. This would lead to increased hedge buying in gold. The next upside target in gold is the late October top at $1361.10.

April Crude Oil traders are also watching the situation in the Ukraine. If the situation develops into a military skirmish then look for oil prices to rise. Helping to limit gains today are worries about the Chinese economy. Over the week-end, China announced an unexpected drop in exports. This could be a sign of a weakening economy and thus a drop in demand. The chart suggests traders will have some big decisions to make if the retracement zone at $100.34 to $99.19 is tested.

The EUR/USD finished lower on Tuesday. The Euro fell after a European Central Bank official said the central bank could still provide stimulus if necessary. Last week, the ECB voted to keep interest rates unchanged, but comments from President Mario Draghi suggested the central bank had no plans to ease further over the near-term.

Earlier today, ECB Vice President Vitor Constancio told Reuters that traders misinterpreted the statement and that the central bank could still implement additional quantitative easing should low inflation continue to remain an issue or if the economy deteriorates. Since the ECB is not too happy with the price level of the Euro, expect more attempts over the near-term to talk the Euro lower.

The GBP/USD turned the main trend to down on the daily chart when the Forex pair took out the last bottom at 1.6640. This sets up a further decline into the next swing bottom at 1.6582. The next major downside target is the retracement zone at 1.6537 to 1.6469.

Fundamentally, the market weakened after U.K. Industrial Production missed expectations. The report showed a slight 0.1% rise in January from December.