gold price rise

Hot Air Lifts Gold

The war of words across the Pacific continues apace.

If only Australia could harness the vitriol being exchanged between Donald Trump’s and Kim Jong-un’s regimes. Our energy woes would be over.

Unfortunately, it looks like Australia’s woes could just be beginning.

And I’m not talking about the looming gas shortage. Even though officials just upgraded the expected shortfall for 2018. It’s now three times what these same experts projected earlier in the year.

Could they still be lowballing the true LNG supply deficit? Of course. But that’s a story for a different day.

Today, we’ll look at how the tensions over North Korea’s nuclear ambitions continue to heat up. And the effect this is likely to have on the markets.

One clear effect is the spike in the gold price. It’s now up 1.4% since last Thursday.

The dangerous rhetoric flying between Washington DC and Pyongyang has reversed gold’s recent downward slide.

Higher interest rates and tighter monetary policies tend to see the gold price fall…at least in the shorter term. That’s because gold doesn’t offer any yield.

And as you likely know, the US Federal Reserve signalled its intent to lift US rates one more time this year. The Fed also intends to begin unwinding it US$4.5 trillion balance sheet. That, by the way, is the price tag of ‘recovery’ from the 2008 financial meltdown. (Yet another story for a different day.)

Have a look at the chart below. It shows the spot gold price in US dollars over the past 30 days:

Source: Bloomberg

Gold peaked at US$1,349.22 on 7 September. Much of its earlier rise was due to…you guessed it. Investor angst over possible trade and shooting wars in Asia.

The yellow metal then fell as investors absorbed the news of the Federal Reserve’s tightening plans. Investors were also lulled into a false sense of security on the geopolitical scene. Military conflict with a nuclear armed North Korea is, after all, unimaginable.

But the latest round of sabre rattling has again seen investors bidding up the price of gold, while most global stock markets dipped.

Phillip Streible, senior commodities broker at RJO Futures in Chicago, sounded off on the dangerous war of words between the US and North Korea. He says it will:

‘…create a shift in assets. People are going to come out of shiftier assets like the SP 500 and go into safe havens like gold, silver and the US treasuries.

Jason Stevenson, our in-house gold expert, offered this advice in Markets & Money:

The dictator [Kim Jong-un] might not start a war tomorrow. But he could easily fire another missile. That’s why you should trade on your toes. Because, at any moment, if tensions start to rise again, gold could fly higher.’

And if recent events are anything to go by, tensions certainly look to be on the rise again.

First, Donald Trump used his podium at the United Nations General Assembly as a bully pulpit. His main target of course, was Kim Jong-un.

Not to be outdone, North Korean Foreign Minister Ri Yong-ho had his turn to address the Assembly on Saturday. His speech came just hours after the US Air Force flew fighters and bombers off the North Korean coast. Albeit still over international waters.

Aside from some juvenile mudslinging, Yong-ho also tossed out this bombshell. He said North Korea firing rockets to the US was now ‘inevitable’, as reported by Reuters.

And then there’s this, from The Australian:

North Korea’s top diplomat says Donald Trump has declared war against his country and that Pyongyang now has the right to shoot US bombers from the sky…

“Last weekend Trump claimed that our leadership wouldn’t be around much longer and declared a war on our country,” North Korea’s foreign minister Ri Long Ho said today in New York.

“Since the United States declared war on our country, we will have every right to make all self-defensive counter measures, including the right to shoot down the United States strategic bombers at any time even when they are not yet inside the aerospace border of our country,” Mr Ri said.’

The S&P 500 lost 0.22% on Monday. While the Dow Jones fell 0.24%. Initial losses were much higher though, with both exchanges down 0.6% in morning trading on news of the heightened tensions.

Gold on the other hand, was up more than 1%.

Unless you expect the situation over North Korea to ease — in which case, congratulations on your optimism — you can also expect that the gold price should continue upwards.

Though never in a straight line.

Bernd Struben

Bernd Struben

Bernd Struben is the lead editor at The Australian Tribune. Bernd makes use of his extensive network to bring you the top stories you need to know about each day. Stories the mainstream may miss. Or bury somewhere you’re unlikely to ever read them. Bernd studied aerospace engineering and journalism at the University of Michigan, before graduating with a degree in economics. Over the past two decades he’s worked in media, management, and finance in the US, the Caribbean, Europe, and Australia. His other role, as the editor of the Port Phillip Insider, puts him in a unique position to read Australia’s most exclusive financial advice. Some of which he shares with readers of The Australian Tribune for free.
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