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The Ukrainian conflict and gold prices

Reports abound that Tuesday’s (Sept. 2) drop in the price of gold was due to a ceasefire between Ukraine and separatist forces, or whatever you wish to call them.  Russian proxies–even Russian soldiers–would be more accurate.

It is unlikely that any resolution to the Ukrainian conflict will please the West.  Vladimir Putin holds all the cards, and right now analysts are only guessing at what Putin hopes to gain.

Some say it’s about re-establishing the old Soviet Russia, but other insightful analysts see it as protective move aimed at shoring up Russia’s defensive position.

Russia would like for Ukraine be a buffer to any future invasion from the West.  (Napoleon and Hitler invaded Russia through Ukraine.)  Putin thought that he had his buffer until Ukrainian President Viktor Yanukovych was deposed in what is widely thought to have been a CIA-directed effort.

Yanukovych had signed an economic agreement with Russia, after having rejected one with the European Union.  In what was a near civil war, Yanukovych fled to Crimea.  The CIA truly had the upper hand–then.

A hastily called election was won handily by Petro Poroshenko, who, to no one’s surprise, quickly aligned with the West and cancelled the agreement with Russia.  That was in May.

Shortly thereafter, so-called Russian separatists began open military assaults in eastern Ukrainian cities.  Now, Russian forces are openly operating in Ukraine.  Originally, they pretended to offer humanitarian relief to beleaguered Russia-sympathizers.  In recently days, Russian troops opened another front in southeastern Ukraine.

It is important to remember that in March Crimea voted to join the Russian Federation, a move that was approved by the Crimean parliament but that was condemned as a sham by Ukraine, Washington and many European nations.

Ukraine continues to assert that Crimea is an autonomous republic that is still part of Ukraine.  Regardless, Russian troops and personnel in Crimea essentially make it part of the Russian Federation.

The Russian absorption of Crimea was brought about by a Russian destabilization of the country, then a referendum in which the majority–sympathetic to Russia–voted to join the Russian Federation.

In the same manner, parts of eastern Ukraine are now being destabilized, and because many of the inhabitants there have links to Russia, a referendum could see parts of eastern Ukraine join the Russian Federation–Ukraine’s worst nightmare.

Ironically, first the CIA engineers a near civil war that results in duly elected Yanukovych being deposed, then Putin counters with his own destabilization of Crimea, which results in Crimea becoming part of the Russian Federation.  Now, Putin is going after sections of eastern Ukraine.

Some analysts see the Russians demanding autonomous sovereignty for desired cities and regions in eastern Ukraine.  This would permit Russia to make agreements with the autonomous areas that would result in virtual absorptions by the Russian Federation.

Finally, some analysts see the Russians as simply wanting Ukraine to agree not to join the European Union or NATO, with a promise of no Western bases or troops in Ukraine.

The crux of the issue: Putin will not back down.  He holds all the cards.  The issue is how far the West will go militarily.  Don’t count on it a weak response, maybe delayed but not weak.  Oil is involved.

According to a May 17, 2014 article in the New York Times, with the annexation of Crimea Russia gained about 36,000 square miles of Black Sea offshore holdings, which had already been explored by major western oil companies.  Some petroleum analysts say the area’s potential may rival that of the North Sea.

Two years ago, interest in the area heated up when a large gas field was found in nearby Romanian waters.

Wars have been fought over lesser matters.  Frankly, I doubt Washington would really care who occupies and runs Ukraine, but now that oil is involved Big Oil’s influence will be felt in DC.

So far, gold’s reaction to developments in Ukraine suggest no serious West-Russian conflict.  If so, Russia will add to its already massive oil/gas reserves, much to the chagrin of Big Oil.  I fear, however, that because oil is in the picture the region may still see fireworks and the impact will move gold’s price higher.

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