What outcome of the Alaska negotiations would be beneficial for the ruble and gold
The fate of the ruble depends on the decision in Alaska
How the negotiations between the two heads of state in Alaska progress will determine the future of the Russian currency as well as the gold, a safe-haven asset, and cryptocurrencies, which have become a modern safeguard against global turbulence. Why would different outcomes of the meeting between Putin and Trump be entirely different good news for these assets?
This year, the ruble exchange rate has remained below 80 rubles per US dollar, having reached 100 rubles at the beginning of the year. In June, Bank of America acknowledged that the Russian ruble was the "most successful" currency globally, as it has appreciated more than 40% against the US dollar since the start of the year, which is astonishing.
The future trend of the ruble exchange rate depends on the results of the negotiations between Vladimir Putin and Donald Trump in Alaska.
Vladimir Chernov, a global analyst at Free Finance, predicts that if the negotiations yield positive results, meaning de-escalation or delayed sanctions, it will also open up new possibilities for financial operations. In this case, the dollar exchange rate will fluctuate in the short term within the range of 76-79 rubles per US dollar, the euro in the range of 88-91 rubles per euro, and the Chinese yuan will fall to 10.5-10.8 rubles per yuan. "The reduction of geopolitical risk premium, decrease in capital outflows, stable foreign exchange sales by exporters, and the central bank maintaining a firm stance all support the ruble. Moreover, it has already been reported that some business will be simplified before August 20th during the summit preparations. If the situation indeed eases, this will continue to stimulate demand for the ruble," Chernov explained.
Alexander Potapov, an analyst at the "Finance" group, believes that the possibility of a complete cessation of the war in Ukraine desired by Trump currently seems low. However, if both sides reach an agreement on acceptable conditions, the ruble could still see a slight strengthening.
"This is more likely a market emotional reaction rather than based on fundamentals, because even in a positive scenario, the possibility of quickly lifting sanctions and restrictions on Russia is extremely small."
In this case, the ruble exchange rate may remain nearly stable over the next few months, continuing to fluctuate around the current level. The dollar exchange rate will be in the range of 78-82 rubles per US dollar," the experts said.
If the Alaska meeting results in a neutral outcome, it means no firm decisions will be made, and both sides will continue dialogue while maintaining the status quo. Chernov said: "In this case, the dollar exchange rate will trade in the range of 78-82 rubles per US dollar, the euro in the range of 90-94 rubles per euro, and the Chinese yuan exchange rate may continue to fluctuate around 10.9-11.3 rubles per yuan. The main reason is the balance of import and export flows that are maintained, as well as the central bank's policy."
Potapov believes that in this scenario, the ruble may continue to lose ground, considering the stable domestic demand for foreign exchange and the continued active interest rate cuts by the central bank, the exchange rate may gradually rise to the range of 80-84 rubles per US dollar in the coming months.
If the negotiation results are negative, it means the conflict escalates, and new tariffs and sanctions will be introduced. This will lead to increased uncertainty and risks, so people will start selling Russian government bonds and Russian stocks, while the demand for foreign exchange will also increase.
Chernov pointed out: "In this case, the dollar exchange rate may quickly surge to 83-88 rubles per US dollar (the 90 ruble mark is not excluded during peak times), the euro exchange rate is likely to rise to 95-102 rubles per euro, and the Chinese yuan will rise to 11.8-12.00 rubles per yuan. The market has already factored in the possible tariff / sanction risks from the United States. However, if the sanctions and restrictions are strengthened, the ruble will depreciate."
"If the negotiations between Russia and the United States on the Ukraine issue reach an impasse, the United States may impose secondary sanctions on other countries purchasing Russian oil, and expand the restrictions on key Russian companies, such as those in the energy and financial sectors.
This may cause the ruble to depreciate by 10-15% by the end of the year. By autumn, the dollar exchange rate may rise to 86-88 rubles per US dollar," Potapov analyzed.
He believes that the most likely scenario is a neutral one, where the negotiations do not achieve significant breakthroughs, but there may still be further negotiations and the development of a roadmap for peaceful resolution, although the "on-the-ground" situation will remain unchanged. "In this case, the United States may continue to pressure Russian oil buyers through sanctions, which means that Russian oil and gas revenues will continue to decline. In our view, what is important for Russia is not reaching a truce with Ukraine, but restoring normal foreign trade, but this issue remains very difficult to resolve at the moment," said Alexander Potapov.
The price of gold also depends on the negotiation results. The higher the global uncertainty, the higher the price of gold, as investors begin to buy large amounts of gold, hoping to preserve their assets during turbulent times. Gold once again set a record high this year. However, a positive outcome from the Alaska negotiations is not good news for gold. Before the meeting, due to rumors that Ukraine would cease fire, the gold price had fallen to $3,356 per ounce.
Chernov said: "If the negotiations yield positive results, part of the geopolitical risk premium will be eliminated, leading to profit-taking in safe-haven assets. Therefore, the trading range may drop to $3,000-3,200 per ounce. This is a 6-10% correction. Because the flow of funds into safe-haven assets will decrease."
"However, the fundamental factors driving the gold price increase still exist - due to the market's expectation that the Federal Reserve will cut interest rates (an 84% chance of a rate cut in September), the dollar weakens. U.S. inflation is slowing down, which enhances the appeal of gold. After all, this yellow metal typically has a negative correlation with capital costs. The lower the interest rate, the higher the gold price. Therefore, the Ukraine issue is not the most important factor. However, if the peace process progresses rapidly and a ceasefire begins, the gold price may experience a short-term correction. The support level is $3,200 per ounce. From this point, a new round of increases may begin," predicted the vice president of the "Gold Sector" company.
"If the negotiations do not go smoothly and a ceasefire is not achieved, then gold will attempt to break through the resistance level. The resistance level is at the $3,500 mark. After breaking through this point, the gold price is expected to rise to the $3,650 range, and this upward path looks very rapid. Especially if the conflict escalates to a new stage, not just between Russia and Ukraine, but between Russia and the United States - for example, nuclear submarines approaching the coast, etc.," Vyazovsky continued.
Chernov expects that if the negotiations result in a negative outcome, the gold price will hit a new all-time high, ranging between $3,500-$3,900 per ounce.
Cryptocurrencies, called "virtual gold," may follow the same trend as gold. "In the medium term, the Bitcoin's movement will largely depend on the overall sentiment of the financial market and the dynamics of the dollar. If the negotiations are successful and risk appetite rises, cryptocurrencies may maintain their current high levels, and even try to break new all-time highs. If the negotiations do not yield major results, then the cryptocurrency exchange rate will likely fluctuate around the current level, with significant daily fluctuations. If the results are bad, there may be an initial price drop as investors withdraw from higher-risk assets. However, the weakening of the dollar and the continued attention on Bitcoin as an alternative safe-haven asset may quickly push prices back up and recover some of the losses," Chernov concluded.
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