Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Stock Market Investors’ Limitless Risk Appetite - 27th Jan 21
3 Dividend Paying Stocks to Ride the New Housing Boom - 27th Jan 21
Biden Seeks Huge Spending, Globally Coordinated Tax Hikes - 27th Jan 21
Will Inflation Make Gold Shine in 2021? - 27th Jan 21
Amazon AI Stocks Investing Analysis 2021 - 27th Jan 21
Why You Shouldn’t Get Excited About Gold Price Mini-Rally - 26th Jan 21
The Truth About Personal Savings Everybody Should Know and Think About - 26th Jan 21
4 Economic Challenges for 2021 - 26th Jan 21
Scan Computers 2021 "Awaiting Picking" - 5950x RTX 3080 Custom PC Build Stock Status - 26th Jan 21
The End of the World History Stock Market Chart : Big Pattern = Big Move - 26th Jan 21
Stock Market Recent Sector Triggers Suggest Stocks May Enter Rally Phase - 26th Jan 21
3 Top-Performing Tech Stocks for 2021 - 26th Jan 21
5 Tips to Manage Your Debt - 26th Jan 21
Stock Market Intermediate Trend Intact - 25th Jan 21
Precious Metals Could Decline Before their Next Attempt to Rally - 25th Jan 21
Great Ways of Choosing Good CMMS Software for a Business - 25th Jan 21
The Dark Forces behind American Insurrectionists - 25th Jan 21
Economic Stimulus Doesn’t Always Stimulate – Pushing On A String - 25th Jan 21
Can Karcher K7 Pressure Washer Clean a Weed Infested Driveway? Extreme Power Test - 25th Jan 21
Lockdown Sea Shanty Craze - "Drunken Sailor" on the Pirate Falls Crazy Boat Ride - 25th Jan 21
Intel Empire Fights Back with Rocket and Alder Lake! - 24th Jan 21
4 Reasons for Coronavirus 2021 Hope - 24th Jan 21
Apple M1 Chip Another Nail in Intel's Coffin - Top AI Tech Stocks 2021 - 24th Jan 21
Stock Market: Why You Should Prepare for a Jump in Volatility - 24th Jan 21
What’s next for Bitcoin Price – $56k or $16k? - 24th Jan 21
How Does Credit Repair Work? - 24th Jan 21
Silver Price 2021 Roadmap - 22nd Jan 21
Why Biden Wants to Win the Fight for $15 Federal Minimum Wage - 22nd Jan 21
Here’s Why Gold Recently Moved Up - 22nd Jan 21
US Dollar Decline creates New Sector Opportunities to Trade - 22nd Jan 21
Sandisk Extreme Micro SDXC Memory Card Read Write Speed Test Actual vs Sales Pitch - 22nd Jan 21
NHS Recommends Oximeter Oxygen Sensor Monitors for Everyone 10 Months Late! - 22nd Jan 21
DoorDash Has All the Makings of the “Next Amazon” - 22nd Jan 21
How to Survive a Silver-Gold Sucker Punch - 22nd Jan 21
2021: The Year of the Gripping Hand - 22nd Jan 21
Technology Minerals appoints ex-BP Petrochemicals CEO as Advisor - 22nd Jan 21
Gold Price Drops Amid Stimulus and Poor Data - 21st Jan 21
Protecting the Vulnerable 2021 - 21st Jan 21
How To Play The Next Stage Of The Marijuana Boom - 21st Jan 21
UK Schools Lockdown 2021 Covid Education Crisis - Home Learning Routine - 21st Jan 21
General Artificial Intelligence Was BORN in 2020! GPT-3, Deep Mind - 20th Jan 21
Bitcoin Price Crash: FCA Warning Was a Slap in the Face. But Not the Cause - 20th Jan 21
US Coronavirus Pandemic 2021 - We’re Going to Need More Than a Vaccine - 20th Jan 21
The Biggest Biotech Story Of 2021? - 20th Jan 21
Biden Bailout, Democrat Takeover to Drive Americans into Gold - 20th Jan 21
Pandemic 2020 Is Gone! Will 2021 Be Better for Gold? - 20th Jan 21
Trump and Coronavirus Pandemic Final US Catastrophe 2021 - 19th Jan 21
How To Find Market Momentum Trades for Explosive Gains - 19th Jan 21
Cryptos: 5 Simple Strategies to Catch the Next Opportunity - 19th Jan 21
Who Will NEXT Be Removed from the Internet? - 19th Jan 21
This Small Company Could Revolutionize The Trillion-Dollar Drug Sector - 19th Jan 21
Gold/SPX Ratio and the Gold Stock Case - 18th Jan 21
More Stock Market Speculative Signs, Energy Rebound, Commodities Breakout - 18th Jan 21
Higher Yields Hit Gold Price, But for How Long? - 18th Jan 21
Some Basic Facts About Forex Trading - 18th Jan 21
Custom Build PC 2021 - Ryzen 5950x, RTX 3080, 64gb DDR4 Specs - Scan Computers 3SX Order Day 11 - 17th Jan 21
UK Car MOT Covid-19 Lockdown Extension 2021 - 17th Jan 21
Why Nvidia Is My “Slam Dunk” Stock Investment for the Decade - 16th Jan 21
Three Financial Markets Price Drivers in a Globalized World - 16th Jan 21
Sheffield Turns Coronavirus Tide, Covid-19 Infections Half Rest of England, implies Fast Pandemic Recovery - 16th Jan 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Will North Korea Boost Gold Prices? Part I

Commodities / Gold and Silver 2017 Sep 22, 2017 - 03:15 PM GMT

By: Arkadiusz_Sieron

Commodities

In August, tensions between the U.S. and North Korea rose after Trump’s famous remarks that threats to the U.S. from Pyongyang would be met with “fire and fury”. The relations between these two countries have not been so tense for a long time. What does it imply for the gold market?

Let’s start with the no-brainer: the conflict about Korean Peninsula is a very old one. It implies that investors are used to it and will not panic after the first dramatic news. Some level of hostile relationships and geopolitical conflicts between countries are inevitable and already priced into the yellow metal. The best example may be the Cold War, i.e. a state of geopolitical tensions between two nuclear powers, the U.S. and the Soviet Union, which lasted from 1947 to 1991, but it did not support the gold prices all the time. Actually, the yellow metal entered a bear market in the 1980s.


As a reminder, the animosity can be traced back to the Korean War, when the U.S. supported South Korea. The military conflict took between 1950 and 1953, when the ceasefire was negotiated. However, South Korea and North Korea are still officially at war – and the U.S. keeps troops (more than 20,000 soldiers) in South Korea continuously. This is why North Korea is not a big fan of the United States, and why it tried for years to develop a nuclear weapon to deter any “imperialistic” interventions aimed to remove the Kim regime from power.

In other words, the relations between the U.S. and North Korea have been strained ever since and elevated tensions are nothing new. Actually, they were much higher in the past, as they involved more than just “war of words”. For example, in January 1968, a U.S. spy ship Pueblo with a crew of 83 people (one of whom was killed) was captured by North Korea. One year later in April, the U.S. plane EC-121 was shot down by North Korea during a reconnaissance mission, killing all 31 Americans aboard. As the price of gold was not allowed to float until 1971, when the gold standard was definitively ended, we cannot analyze their impact on the gold market (however, their influence on financial markets was limited).

On August 18, 1976, the “axe murder incident” occurred, in which two American soldiers were killed with axes in the Korean Demilitarized Zone during routine tree-clearing. It was followed by joint U.S. and South Korean Operation Paul Bunyan aimed to cut down that damn tree and to undertake a show a force. Although there was concern that it could spark a wider conflict, the incident and the following operation did not boost gold prices. As one can see in the chart below, the price of gold actually fell in that period.

Chart 1: Gold prices after axe murder incident on August 18, 1976.

 

On December 17, 1994, the U.S. helicopter OH-58 Kiowa helicopter was shot down over North Korea. One pilot died while another was captured, reigniting the tensions around the Korean Peninsula. However, the price of gold declined on December 19, while the following price increases were only temporary, as the chart below shows.

Chart 2: Gold prices after shootdown of OH-58 Kiowa on December 17, 1994.

 

On October 9, 2006 North Korea conducted its first nuclear bomb test, angering world governments. Gold gained that day, but there was not a sustained rally, as one can see in the chart below.

Chart 3: Gold prices in October 2006.

 

2009 was another hot time when on March 17 North Korea arrested two American journalists who were released in August after former president Bill Clinton’s visit in Pyongyang. And on May 25, North Korea conducted a nuclear bomb test. As the chart below shows, these events did not support gold prices.

Chart 4: Gold prices in spring 2009.

Actually, the price of gold declined each time. There was a surge on March 19, but it was caused by the Federal Reserve, which announced that day its quantitative easing program, i.e. its plan to purchase $1 trillion in long-term Treasuries and mortgage securities in order to stimulate the economy after a crisis. It shows that monetary policy and macroeconomic developments are much more important drivers of the gold prices than geopolitical events.

On March 26, 2010, a South Korean corvette ROKS Cheonan sunk, apparently due to a North Korean torpedo. The attack was described by the White House as an “act of aggression”, which caused the deaths of 46 sailors and was one of the deadliest incidents between the rivals since the end of the 1950-53 Korean War. As one can see in the chart below, the price of gold rose after the incident, but it is hard to attribute the increase solely to geopolitics, as the yellow metal remained in its tremendous bull market.

Chart 5: Gold prices after sinking of ROKS Cheonan by North Korean torpedo on March 26, 2010.

 

To sum up, the incidents related to North Korea have a poor track record when it comes to boosting the gold prices. Tensions around the Korean Peninsula sometimes lifted gold prices for a while, but the impact was usually temporary and limited. The conclusion is that the positive effect of geopolitical risks may only add some upward pressure to the underlying fundamental bullish trend, but they are usually unable to reverse bearish sentiment.

Thank you.

If you enjoyed the above analysis and would you like to know more about the gold ETFs and their impact on gold price, we invite you to read the April Market Overview report. If you're interested in the detailed price analysis and price projections with targets, we invite you to sign up for our Gold & Silver Trading Alerts . If you're not ready to subscribe at this time, we invite you to sign up for our gold newsletter and stay up-to-date with our latest free articles. It's free and you can unsubscribe anytime.

Arkadiusz Sieron
Sunshine Profits‘ Market Overview Editor

Disclaimer

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Arkadiusz Sieron Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules