Gold Rallies On North Korea Tensions

August 29th, 2017 by

Somewhat to the surprise of markets (given the dramatic response), the regime in North Korea (DPRK) rudely shook the world awake on Tuesday after testing yet another deadly missile. This time, the projectile was launched over Japan and landed on the east side of the country in the Pacific Ocean. This drove the gold price to an 11-month high near $1,320/oz after the yellow metal gained another 1% on Tuesday morning.

This pushed gold up $32 per ounce in a matter of just the last 36 hours, with the action driven primarily by the geopolitical tensions with North Korea once again resurfacing. Spot silver added 20¢ (+1.1%) to trade at $17.62/oz.

Platinum and palladium each traded in positive territory, with the former moving above $1,000/oz for the first time in roughly six months.

Before moving on, here are Monday’s closing numbers for the markets:

Gold: $1,309.50/oz (+$18.70, +1.45%)
Silver: $17.42/oz (+38¢, +2.20%)
Platinum: $987/oz (+$15, +1.54%)
Palladium: $929/oz (+$9, +0.98%)

Dow Jones: 21,808.40 (-5.27. -0.02%)
Nasdaq: 6,283.02 (+17.37, +0.28%)
S&P 500: 2,444.24 (+1.19, +0.05%)
DXY (dollar index): 92.20 (-0.18, -0.19%)
WTI crude: $46.81/bbl (-$1.06, -2.21%)

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North Korea’s brazen missile test is certainly shaking investors’ confidence in riskier assets, spurring safe-haven flight not only into gold but also U.S. bonds. The 10-year Treasury yield plunged to 2.10% this morning, a full 10 basis points below the yield at the beginning of last week.

Although the dollar is typically also included as a safe haven during such events, it was the euro that dominated the currency trade, rallying to $1.20. This pulled the greenback down 0.4% on the DXY index to just 91.85. In terms of stocks, shares in Tokyo and Seoul were only off about 0.5% in the wake of the news from North Korea, but European indices were far deeper in the red: London’s FTSE 100 was off by 1% to a hit a four-month low, shares in Paris and across the eurozone were down by more than 1.3%, and Germany’s DAX index tumbled by 1.8%. Meanwhile, shares in the U.S. lost more than 0.5%.

The sudden escalation of tensions with the DPRK once again puts a slew of other important developments in the markets, such as a looming U.S. government shutdown over the debt ceiling, on the back burner.

At the same time, Hurricane Harvey continues to devastate Texas’s Gulf Coast. The vicious storm is back in the warm gulf waters building speed, and is expected to make a second round of landfall in the region. The storm has already displaced tens of thousands of residents in the greater Houston area from their homes, resulting in evacuations and a refugee situation in neighboring parts of the state like San Antonio. President Trump is visiting Texas today and has pledged billions in aid from the federal government to help protect those still vulnerable to the effects of Harvey.

The Houston metro area is the fourth-largest city (and fifth-largest economy) in the country, but the hurricane has obviously brought everyday life to a standstill. There has thankfully been an outpouring of support from brave members of local communities, law enforcement, humanitarian groups, and major U.S. corporations. The National Flood Insurance Program has begun partnering with other insurers in the public bond market to try and make up for the huge economic loss and damage. Our hearts and prayers go out to everyone impacted by the storm, and those who have tragically still not found safety.

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.