Gold was higher in international trading yesterday, notching as high as $1,337/oz. Of course, this didn’t show up in the New York markets, which were closed due to the Labor Day holiday on Monday. When things got back to business as usual on Tuesday, spot gold opened just slightly below unchanged at $1,333/oz.
The precious metals will likely continue to respond to safe-haven fears over the escalating rhetoric (and actions) by the Kim regime in North Korea (DPRK). The country allegedly tested what may well have been a hydrogen bomb over the long weekend. Although the Trump administration is working with South Korea to formulate a tougher yet measured response, it’s possible that the DPRK could continue to test missiles and other weapons with relative impunity as it progresses toward becoming a nuclear threat.
These increasing tensions on the Korean Peninsula are a looming problem for the entire region, particularly Japan and South Korea—both key U.S. allies. Meanwhile, even China and Russia, who are essentially a two-pronged economic lifeline to the North Koreans, have an interest in not seeing their neighbors engaged in such brinksmanship or, even worse, engulfed in an actual armed conflict in their backyards.
Naturally, bonds rose on Tuesday in response to the growing crisis. The 10-year Treasury yield tumbled lower to 2.11%. The dollar also moved modestly lower, falling below 92.5 on the DXY index. Stocks in the U.S pointed lower, as well, although shares overseas were mixed. After the big dump of economic data last week, attention is once again turning toward more political (and obviously geopolitical) challenges to a continued bull market in risk assets. One of this week’s major themes will be a slew of central bank meetings, including the Federal Reserve.
As Texas and the surrounding U.S. Gulf Coast states remain in the early stages of dealing with the devastation brought on by Harvey, another storm—Hurricane Irma, already a category 5 storm—is headed toward Florida. According to a Reuters survey of companies located in Texas, Hurricane Harvey knocked over 4 million barrels of crude oil production a day offline, which represents a loss of roughly 80% of the state’s daily output. Texas is the top oil-producing state in the union, accounting for 30% of the entire country’s oil refining capacity. With its next-door neighbor Louisiana, these two states represent roughly half of America’s total refining capacity.
Given the situation along the Gulf of Mexico, WTI crude was up over 2.5% on Tuesday to $48.50 per barrel. Beyond the local destruction and danger, this hurricane season has also caused gasoline prices to spike across the country.
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.