North Korea and Gold
The lack of a peace treaty between North Korea and South Korea is disturbing for investors who worry about the possibility of a new military conflict between the South with its ally, the U.S., and the North. In particular, 2017 was a time of escalated tensions between North Korea and the U.S. There were two reasons for that: the rapid progress of North Korea’s nuclear program and Trump’s elevated rhetoric against North Korea. On August 8, the U.S. President promised that “fire and fury” would meet North Korean threats. Some analysts and investors believed that the tensions between the countries would make gold prices soar.
However, historical analysis shows that incidents related to North Korea usually failed to ignite sustained gold rallies. Surely, tensions around the Korean Peninsula were sometimes able to lift gold prices for a while, but the impact was usually temporary and limited. This finding is in line with the fact that geopolitical risks are not able to trigger anything but a short-term and limited response in the gold market. In other words, they may add some upward pressure to the underlying fundamental bullish trend, but they are usually unable to reverse bearish sentiment. Hence, gold investors should look cautiously at North Korea which may be now a nuclear power able to threaten the U.S. with a hydrogen bomb, but they should not expect geopolitical factors, including tensions around the Korean Peninsula, to dominate the long-run fundamental drivers of the gold market, such as the U.S. dollar’s strength or real interest rates.
We encourage you to learn more about the gold market – not only about the link between the tensions around the Korean Peninsula and the yellow metal, but also how to successfully use gold as an investment and how to profitably trade it. A great way to start is to sign up for our gold newsletter today. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today.
