Ukraine Lurches to Full Scale War as Russia Drastically Reduces Gas Supply to EU

Vladimir Putin has ordered the Russian state energy giant Gazprom to cut natural gas supplies to and through Ukraine to the EU in a little reported move. It took place late on Wednesday and was overshadowed by the Swiss National Bank market turmoil yesterday.

Russia has shut off gas supplies through Ukraine to six EU states, ostensibly due to Ukraine’s alleged illegal siphoning gas from the pipeline. The European Union warned that the sudden cut-off to some of its member countries was ‘completely unacceptable’. The move comes just as winter begins to bite across Europe.

The pipeline crossing Ukraine supplies over 60% of the entire EU’s natural gas. Six countries – Greece, Bulgaria, Macedonia, Croatia, Romania and Turkey – report a complete halt of gas coming in from Russia.

Yesterday, Ukraine confirmed that Russia had completely cut off their supply. Croatia said it was temporarily reducing supplies to industrial customers while Bulgaria said it had enough gas only ‘for a few days’ and was already in a ‘crisis situation’.

There is the risk of an energy crisis and it is worrying that the move comes about at a time of increased maneuverings and posturing by NATO and the Russian army and deepening conflict in Ukraine.

Ukraine lurched back toward full-scale conflict today as troops loyal to the new Ukraine government battled with pro-Russian forces for control of an eastern airport.

Ukraine said yesterday that cease fire violations have surged to a new record, while the nation’s security council warned the unrest may spark a “continental war” and German Chancellor Angela Merkel called for emergency talks.

Russia is planning to divert it’s EU bound natural gas to a pipeline through Turkey opening at the Turkey-Greece border. Bloomberg quotes Valentin Zemlyansky of the Ukrainian gas company Naftogaz,  “They [the Russians] have reduced deliveries to 92 million cubic metres per 24 hours compared to the promised 221 million cubic metres without explanation,”

“We do not understand how we will deliver gas to Europe. This means that in a few hours problems with supplies to Europe will begin.”

Russian Energy Minister, Alexander Novak put it bluntly, “The decision has been made. We are diversifying and eliminating the risks of unreliable countries that caused problems in past years, including for European consumers.”

Bloomberg reports, “Gazprom, the world’s biggest natural gas supplier, plans to send 63 billion cubic meters through a proposed link under the Black Sea to Turkey, fully replacing shipments via Ukraine, Chief Executive Officer Alexey Miller said during the discussions.”

“We have informed our European partners, and now it is up to them to put in place the necessary infrastructure starting from the Turkish-Greek border,” Miller said.

Such a project would likely take months to implement. In the mean-time many Europeans may not have access to gas to warm their homes through winter and many industries will also be without gas – effecting production, employment in already struggling economies.

Whether or not Russia is calling Europe’s bluff in a bid to ease sanctions is unclear at this point. It appears that Turkey, an erstwhile NATO member, is warming to Russia, possibly due to the instability that western actions in the Middle East have brought to Turkey’s doorstep.

Earlier this week Turkish President Erdogan made the stunning accusation that “the West” staged the attacks in Paris last week.

The French, also, have been considering a foreign policy independent of the NATO status-quo. France is in the process of completing two battle ships for sale to Russia. Earlier this month President Hollande stated that sanctions against Russia should be lifted.

Tensions and suspicions are escalating even within the Western block. The EU does not have many cards left to play in dealing with Russia.

Tensions in the EU may arise as natural gas required for industry may have to be diverted to households to avoid social upheaval.

Geopolitical tensions are escalating across the world, concurrent with indications of an imminent and severe recession globally.

Gold has played an important role in protecting peoples wealth in uncertain times and will do so again in the coming years.

REVIEW of 2014 – Gold Second Best Currency, +13% in EUR, +6% GBP

OUTLOOK 2015 – Uncertainty, Volatility, Possible Reset – DIVERSIFY

MARKET UPDATE

Today’s AM fix was USD 1,258.25, EUR 1,082.37 and GBP 826.76 per ounce.
Yesterday’s AM fix was USD 1,235.25, EUR 1,055.41 and GBP 811.76 per ounce.

Gold surged in dollars, pounds and especially euros yesterday after the SNB caused turmoil in markets. Spot gold surged $30.50 or 2.48% to $1,258.50 per ounce and gold in euro terms rose by 4 per cent from EUR 1,044 to over EUR 1,085 per ounce, as investors sought safety in the precious metal after Switzerland decoupled the franc from the euro.

Gold is up almost 3.5% this week in dollar terms its largest gain in nearly a year. In euro terms gold is is up 5.3 percent and in sterling terms by 3.6 percent.

2015 year to date, gold is up 5.5 percent in dollar terms, 11.6 per cent in euro terms and almost 8 per cent in sterling terms. Overnight, spot gold in Singapore rose to $1,263.11 prior to determined selling  pushed prices a little lower. In London, prices reached a low of $1,255 prior to a bounce to $1,262 per ounce.

There was a pullback in gold futures prices for the first time in six days on speculation that prices had risen too much after the spike to a four-month high. Gold’s rally sent its 14-day relative-strength index (RSI) to close to 70, a level that signals to some traders and analysts that prices may be poised to correct lower.

Traders and analysts surveyed by Bloomberg were bullish on gold for a seventh week, noting the chancel for more QE in Europe and speculation the U.S. Federal Reserve will delay raising interest rates.

Demand in China remains very robust and has got off to another cracking start with withdrawals on the Shanghai Gold Exchange (SGE) at a very robust 61 metric tonnes in the first week of the year (January 4th to 9th).  Chinese demand is high ahead of the Chinese Lunar Year as jewelers and bullion dealers stock up on jewelry and gold coins and bars.

Gold continues to flow from West to East as indicated in the continuing very high demand from China and India and the developing architecture for physical gold trading in China.

The Shanghai Gold Exchange and World Gold Council announced this week that they have partnered to develop the Shanghai Free Trade Zone as a global gold market. The Shanghai Gold Exchange is the largest physical gold exchange worldwide and the World Gold Council is the global authority on the gold industry representing mining organizations.

Together, these two organizations are joining hands to support the development of both domestic and international gold buying in China by leveraging the opportunity provided by the internationalisation of the Chinese gold market, through the Shanghai Free Trade Zone (FTZ), to support market expansion. The agreement will support the development of gold investment products and solutions for the industry and investors both regionally and globally.

Sales of U.S. Silver Eagle coins for January have started strong with 3.6 million sold compared to 4.7 million for the entire month of January last year.  The U.S. Mint began selling Gold Eagles last week with 51,500 ounces reported on the first day of sales.

2014 sales of American Eagle Silver bullion coins were 44,006,000 ounces. The figure was driven by fourth quarter sales, with December up 104% year-on-year. Based on U.S. mint figures sales of Silver Eagles eclipsed Gold Eagles’ by 59% in 2014.

Today, silver rose 0.4 per cent to $17.10 an ounce. Palladium rose 0.4 percent to $770 an ounce and platinum lost 0.2 percent to $1,260.50 an ounce.
From GoldCore Trading DeskWe have seen surging demand for gold and silver in January. Buy side trades are up 25% and volume is up 85% for same period last year. Buy orders and volume are also higher than the 3 year average for this time of year. The sell side is flat, with no change seen. The ratio of gold buying to silver buying is 60:40 – in favour of gold.