Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21
China / US Stock Markets Divergence - 10th Oct 21
Can US Save Taiwan From China? Taiwan Strait Naval Battle - PLA vs 7th Fleet War Game Simulation - 10th Oct 21
Gold Price Outlook: The Inflation Chasm Between Europe and the US - 10th Oct 21
US Real Estate ETFs React To Rising Housing Market Mortgage Interest Rates - 10th Oct 21
US China War over Taiwan Simulation 2021, Invasion Forecast - Who Will Win? - 9th Oct 21
When Will the Fed Taper? - 9th Oct 21
Dancing with Ghouls and Ghosts at Alton Towers Scarefest 2021 - 9th Oct 21
Stock Market FOMO Going into Crash Season - 8th Oct 21
Scan Computers - Custom Build PC 6 Months Later, Reliability, Issues, Quality of Tech Support Review - 8th Oct 21
Gold and Silver: Your Financial Main Battle Tanks - 8th Oct 21
How to handle the “Twin Crises” Evergrande and Debt Ceiling Threatening Stocks - 8th Oct 21
Why a Peak in US Home Prices May Be Approaching - 8th Oct 21
Alton Towers Scarefest is BACK! Post Pandemic Frights Begin, What it's Like to Enter Scarefest 2021 - 8th Oct 21
AJ Bell vs II Interactive Investor - Which Platform is Best for Buying US FAANG Stocks UK Investing - 7th Oct 21
Gold: Evergrande Investors' Savior - 7th Oct 21
Here's What Really Sets Interest Rates (Not Central Banks) - 7th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Will North Korea Boost Gold Prices? Part2

Commodities / Gold and Silver 2017 Oct 03, 2017 - 04:15 PM GMT

By: Arkadiusz_Sieron

Commodities

The turn of 2012 to 2013 was a time of escalated tensions between North Korean and the U.S, comparable to recent strains. Hence, the analysis of that period should be valuable for gold investors curious whether (and how) the latest crisis on Korean Peninsula would affect the precious metals market. On December 12, 2012, North Korea successfully launched a long-range rocket, testing a banned ballistic missile and raising nuclear stakes. In response, the U.N. Security Council approved the broadening of sanctions. But North Korea ignored them and on February 12, 2013 it undertook an underground nuclear bomb test. As the test triggered another, even harsher sanctions, North Korea threatened the U.S. with a preemptive nuclear strike on March 7. On March 30, North Korea declared a “state of war” against South Korea, and Kim Jong-un said that “rockets were ready to be fired at American bases in the Pacific.” On April 2, the North Korean military declared that the war could break out “today or tomorrow”. Tensions remained elevated until May, but they did not boost gold prices. Actually, in April there was a historic slide, as the next chart shows. Hence, if history is any guide, the fresh unease about North Korea will not provide any sustained support for the gold prices.


 

Chart 1: Gold prices at the turn of 2012 and 2013.

In 2016, North Korea conducted another two nuclear tests. As one can see in the chart below, the January test triggered only limited and temporary upward gold’s reaction, while the September test failed to do even that.

 

Chart 2: Gold prices after North Korea’s nuclear weapon tests on January 6, 2016 and on September 9, 2016.

 

And finally let’s turn to the latest “war of words” between North Korea and the U.S.

As a reminder, 2017 has been a year of rapid progress for North Korea’s missile program, as the regime fired 21 missiles during 14 tests this year, according to CNN’s statistics. The most important were two intercontinental ballistic missile tests, which occurred on July 4 and July 28, as the U.S. territory was within their ranges. These launches signaled an improved nuclear weapon capability, sparking anxiety around the world. On August 5, the United Nations Security Council unanimously passed new sanctions on North Korea, while on August 8, President Donald Trump promised that “fire and fury” will meet North Korean threats. In response, on August 10, the North Korean military declared that the regime was considering plans for a missile strike on the U.S. Pacific territory of Guam, so Trump replied the next day that “military solutions are now fully in place, locked and loaded”.

 

Despite a lot of fuss and fears about the nuclear war, these tensions did not make gold prices to soar. As the next chart shows, although gold prices gained after Trump’s “fire and fury” statement and the following developments, the impact was limited. And the price of the yellow metal actually fell after the first intercontinental ballistic missile test. Moreover, when North Korea backed down from attacking Guam on August 15 (the regime has a poor track record when it comes to delivering on its aggressive threats), gold prices did not decline, they continued higher. It implies that price movements in the gold market are caused by other factors than geopolitical developments.

 

Chart 3: Gold prices in summer 2017, part I.

 

However, the ease of tensions after August 15 was only calm before the storm, as North Korea launched a few Scud missiles on August 26 and a ballistic missile over northern Japan on August 29. Moreover, on September 3, the regime conducted its sixth nuclear test. As one can see in the chart below, the price of gold reacted positively these times, presumably due to unprecedented character of these developments. Although there have been North Korean flights over Japan before, the latest missile was the first one with a potential nuclear capability which flew over the Land of the Rising Sun. Similarly, although North Korea has conducted nuclear test before, the recent one was likely a hydrogen bomb, which is much more powerful than regular atomic bomb.

 

Chart 4: Gold prices in summer 2017, part II.

 

Summing up, the historical analysis shows that incidents related to North Korea usually failed to ignite sustained gold rallies. The price of the yellow metal either increased only for a while, or even dropped after the geopolitical events analyzed. Although we have not examined all incidents – because of the limited length of the Market Overview – the conclusions are clear. Geopolitical risks in general, and threats from North Korea in particular, are not able to trigger anything but a short-term and limited response in the gold market. Having said this, investors should remember that until 2017 North Korea was a small and fusty country, but now it may be a nuclear power able to threaten the U.S. with the hydrogen bomb. Another important factor is that now not only the leader of North Korea seems to be unpredictable, but the U.S. president as well. Hence, gold’s reaction may be more decisive in the eventual conflict, but long-term trends will remain shaped by long-term cycles and fundamental factors, such as the U.S. dollar’s strength of the real interest rates instead of geopolitical threats.

 

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