Investors Buy Gold Futures and Treasuries as Ukraine Drives Flight to Safety

As global geopolitical tensions escalated over Ukraine, investors switched to defensive sectors and safe havens such as Treasury bonds and gold. One of the sessions during the week saw the S&P 500 record its worst daily percentage decrease in two weeks.

The Dow Jones Industrial Average (.DJI) finished Friday’s session at 34,079.18, down 615.78 or -1.77% for the week, the S&P 500 (.SPX) dropped 63.74 points (-1.44%), to 4,348.87 and the Nasdaq Index (.NDX) slid 223.86 points (-1.57%), to 14,009.54.

The situation in Ukraine has added to investor uncertainty surrounding the Federal Reserve’s plans to tighten its monetary policy to combat inflation.

The fluid situation updates throughout the week saw fear punctuated by relief rallies – news that the Russian foreign minister and American state secretary have agreed to meet in Europe next week sent the S&P 500 and Nasdaq 100 futures higher. However, the mood changed on Thursday, when tech stocks plummeted, wiping 3% off the tech-heavy Nasdaq 100, driven lower by increased Biden administration warnings of a possible Russian attack on Ukraine. Moscow has dismissed the warnings as false once more.

The growth-oriented technology (SPLRCT) and communication services (SPLRCL) sectors on Wall Street took the brunt of the losses. As U.S. Treasury yields fell, financials (SPSY) fell as well.

The only gainers on Wall Street were the defensive utilities (.SPLRCU) and consumer staples (SPLRCS) sectors, with staples benefiting from Walmart’s (NYSE: WMT) 4.01% gain on Thursday after it reported record Christmas sales.

Major Gain – (DoorDash: NYSE)

DoorDash Inc (NYSE: DASH) shares rose 10.69% on Thursday after reporting strong quarterly sales, indicating that food delivery demand isn’t slowing down. It also shows that ordering patterns have permanently altered, driving the company’s shares up 24% on Wednesday after the bell.

According to the Wednesday report, the delivery business received 369 million orders during the quarter, a 35% rise year-on-year and more than the 361 million orders projected by analysts. Consumers also continued to increase their order spending. The total amount of orders increased by 36% year-on-year to $11.2 billion, beating Wall Street’s forecast of $10.6 billion.

Revenue for the fourth quarter was $1.3 billion, exceeding analyst expectations of $1.28 billion. The company announced a 45-cent loss per diluted share, higher than Refinitiv’s estimate of a 25-cent loss.

During the coronavirus epidemic, DoorDash benefited greatly from stay-at-home habits since many restaurants limited indoor seating, and consumers chose to order food to avoid exposure to the virus. Market gross order value is expected to be between $48 billion and $50 billion.

Major Loss –Albemarle Corp (ALB: NYSE)

Albemarle Corp (ALB: NASDAQ) fell 19.91% on Thursday after reporting lower-than-expected annual results. Albemarle Corp, one of the world’s top lithium manufacturers, estimated yearly earnings that were lower than market expectations despite lithium prices being at record highs, disappointing investors, and sending shares down 11% on Wednesday.

Albemarle described its fourth-quarter performance as solid, despite revenues increasing by only 2% year over year, a slowdown from previous quarters. Furthermore, the $1.01 per share profit reported before was simply a pro forma figure, and Albemarle lost $0.03 per share for the period when measured using generally accepted accounting principles (GAAP).

Albemarle’s sales increased by 6% to $3.3 billion for the entire fiscal year 2021. GAAP earnings plunged 70% year-on-year to just $1.06 per share. Albemarle’s ongoing investments in capacity development resulted in even more negative free cash flow. Albemarle reported $1.01 earnings per share on sales of $894 million. From $897 in sales, Wall Street expected $1 in earnings per share. 

In 2022, the business expects to earn $6.15 per share on $4.4 billion in revenue. Analysts expect earnings per share to be $6.20 and revenues to be around $4 billion.

Commodities Market

Silver Futures

Silver demand is increasing globally and is forecast to hit a new high this year, providing an opportunity for investors to acquire the metal at prices that haven’t changed much in the last six months.

According to the Silver Institute, total world silver demand will rise by 8% this year to a new high of 1.112 billion ounces. Global industrial silver demand is expected to grow 5% this year, 552 million ounces.

Silver March futures (SIH22), settled at $23.992 at the close on Friday on trading volume of just over 51,700 contracts.

President and Portfolio Manager Michael Cuggino, of the Permanent Portfolio Family of Funds, believes that 2021 served as a “basing and consolidating year”. According to him, this is going to provide a good entry point for a long-term investor in silver or gold, both of which saw price declines last year as inflation started to emerge but was explained away as transitory.

Despite this, silver futures have frustrated swing traders; there’s been little volatility and prices have been stuck in a trading range of less than $5 per ounce since August.

Gold Futures

Gold prices soared to an eight-month high on Thursday after US President Joe Biden claimed that there was every evidence Russia was planning an attack on Ukraine. At the same time, Moscow accused the US of disregarding its security requests.

Gold futures for April closed the week at $1,899.8 per ounce, its highest level since June. As a result of the Russian anxieties, investors raced into US Treasuries and gold as safe-havens.

Currently, gold and gold stocks are gaining. However, if tensions between Russia and Ukraine lessen, gold and other safe-haven investments could quickly reverse. That said, even if the present Russian situation passes, the market will still be dealing with high inflation and a Federal Reserve on the verge of raising interest rates aggressively.

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Tim Thomas has positions in Gold and Silver but holds no other positions in the stocks, ETFs or mutual funds mentioned.

This post was produced and syndicated by Tim Thomas / Timothy Thomas Limited.

Featured credit image: Unsplash.