Ukraine-Russia worries send gold, oil prices higher

The prices of oil and gold surged as the world reacted to the escalating conflict in Ukraine, with Russia seemingly on the brink of war over control of Crimea.

Oil prices rose more than two per cent to move above $104 US per barrel, and gold gained more than two per cent to trade at almost $1,350 an ounce.

• Can Russia keep its hands off Ukraine?

Stock markets in Europe headed lower on what British Foreign Secretary William Hague has called the worst crisis Europe has faced this century.

• Germany's DAX sank 2.4 per cent to 9,455.1.
• France's CAC-40 shed 1.6 per cent to 4,337.71.
• Britain's FTSE 100 lost 1.3 per cent to 6,723.72.

In Toronto, the TSX ended the day up three points at 14,212 after being down by about 40 points at midday. Toronto's benchmark stock index would have been even lower were it not for all the energy and gold companies in it, which offset losses in other sectors.

"With news of this sort, gold names could have a pretty good run," Manulife portfolio manager Patrick Blais said. "The backdrop is definitely supportive. With the uncertainty, I think they'll keep moving higher."

Natural gas shipments

Gas exports are a major economic question mark, as Russia's vast reserves of natural gas are one of the major sources of power for much of Eastern Europe, and Ukraine in particular.

Russia shipped 133 billion cubic metres of gas to Europe last year, including 40 billion to Germany. That's more than a third of Germany's entire supply of natural gas.

"No wonder Europe's response to the ongoing problems has been little more than a wag of the finger at this stage," said Kathleen Brooks, market analyst at Forex.com.

Russian stocks were hit hardest, with the MICEX losing 12.7 per cent. That's almost $60 billion US worth of stock market value wiped out. Russia's currency, the ruble hit all-time lows against it's major traders. It fell below 50 to the euro for the first time ever and is below 37 against the U.S. dollar, also a record.

Russia increased its key interest rate by 1.5 percentage points overnight in an effort to support the ruble.

"The only problem is that it didn’t really work," Scotiabank economists Derek Holt and Dov Ziegler said in a note Monday morning.

U.S. stocks were also lower, with the Dow Jones Industrial Average and the S&P 500 both losing close to one per cent.

Wheat prices rise

The conflict in Crimea is also affecting the agricultural market, as Ukraine and the regions surrounding it are one of the world's largest exporters of wheat.

The most actively traded wheat future contract has increased from about $550 to more than $650 since the end of January.

"Markets have certainly escalated over there in the last few days, and they're starting to reflect conflict premiums," Ag Scientia analyst Lloyd George said.

"Clearly as an importer from that part of the world, you'd be concerned about your future supplies if there were going to be interruptions," Profarmer grain analyst Ron Storey said.

Eventually, the economic instability could hurt Putin's status, said Jeff Sahadeo, an expert in Russian and Eastern European history from Carleton University in Ottawa.

"This is a lose-lose scenario for everybody....As the Russians are going in, with the Russian stock market dropping, if investor confidence falls, capital flight could ensue,” Sahadeo said in an interview with CBC's The Lang & O'Leary Exchange. 

“Sanctions from the U.S. wouldn’t do much good, but sanctions from the EU would really bite – Europe is Russia’s biggest trading partner," he added.