After almost a year of fighting in eastern Ukraine, a ceasefire agreed on February 12 in Minsk, Belarus, went into effect after midnight on the night from Saturday to Sunday. How may the ceasefire gold prices?

There are two ways in which the ceasefire can impact the gold market. First, it reduces a bit of uncertainty connected with the Ukrainian conflict, which could lower demand for gold as a safe haven. Having said that, we have to point out a few reservations. The ceasefire does not mean the end of the conflict and actually it is a big unknown now whether the ceasefire will hold or not. Although the peace agreement has been generally respected so far, there have been some exceptions. Investors should also remember that the previous ceasefire agreed on September 2014, very similar to the current one, collapsed within days of its signing. Moreover, Ukrainian President Petro Poroshenko promised to pass a new constitution, which requires parliament backing (which is uncertain), while Putin did not, in principle, resign from the idea of controlling Ukraine.

Second, the agreement lessens the probability that further economic sanctions will be imposed on Russia. The planned talks about further sanctions during the EU leaders summit in Brussels did not occurred, however, the EU may impose them if a ceasefire is not fully implemented. And U.S. Secretary of State, John F. Kerry, said in a statement that “the United States is prepared to consider rolling back sanctions on Russia when the Minsk agreements of September 2014, and now this agreement, are fully implemented.” The lack of further sanctions helps the Russian economy, suffering from an economic crisis (after the ceasefire announcement, the dollar-based equity index RTS soared 5.8 percent, and the ruble-based MICEX increased 2.58 percent) and reduces market uncertainty, which can negatively affect gold prices.

To sum up, the Ukrainian ceasefire could weaken the safe-haven demand for gold. However, investors should remember that it does not necessarily mean the end of the conflict. Even if it does, geopolitics does not seem to be the most important factor in the gold market. Anyway, the ceasefire has been probably already discounted in the gold prices, according to the old rule ‘buy the rumor, but sell the news,’ which traders follow.

Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor

Gold News Monitor
Gold Trading Alerts
Gold Market Overview