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Fire, Fury and Gold

The rising tensions between the U.S. and North Korea are the hottest topic right now. Yesterday, U.S. Defense Secretary Jim Mattis issued a statement saying that Pyongyang â??must choose to s...

The war of words between the U.S. and North Korea continues. What does it imply for the gold market?

The rising tensions between the U.S. and North Korea are the hottest topic right now. Yesterday, U.S. Defense Secretary Jim Mattis issued a statement saying that Pyongyang “must choose to stop isolating itself and stand down its pursuit of nuclear weapons” and that North Korea “should cease any consideration of actions that would lead to the end of its regime and the destruction of its people.” His warning followed Trump’s remarks that threats to the U.S. from Pyongyang would be met with “fire and fury”, and the regime’s immediate reply saying it was “carefully examining” plans for a missile strike on the American territory of Guam, where 160,000 people live and where a U.S. military base is located.

Also on Wednesday, President Trump followed up his earlier remarks, tweeting:

“My first order as President was to renovate and modernize our nuclear arsenal. It is now far stronger and more powerful than ever before. Hopefully we will never have to use this power, but there will never be a time that we are not the most powerful nation in the world!”

The rising tensions rattled financial markets – the CBOE VIX Index, which measures expected stock market volatility, hit its highest in more than a month. In consequence, investors got out of equities and turned to safe havens such as Treasuries and gold, as the chart below shows.

Chart 1: Gold prices over the three last days.

Gold prices over the three last days

However, the financial markets are far from panicking. The moves remains within the trading range and are not extraordinary. There may be two reasons for that. First, North Korea has a poor track record when it comes to delivering on its threats. Second, investors are now getting used to Trump’s unpredictable and bold statements, so they increasingly ignore him. Hence, although tensions could last for a while, their long-term impact on the gold market should be limited. And sideways trading is likely to continue after the fears retreat. Unless, of course, nuclear war actually breaks out. However, during nuclear apocalypse, the level of gold prices would be the least problem for humankind. Stay tuned!

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Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our trading alerts.

Thank you.

Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor

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