Gold Soars on North Korean Tensions
Gold and precious metal prices have been soaring as geopolitical tensions get wound tighter and tighter. Gold is currently trading at a five-month high, near $1,275, and a near-term run to $1,300 per ounce is not out of the question as tensions between the U.S. and North Korea reach a tipping point.
U.S. President Donald Trump and Russian President Vladimir Putin are also trading barbs over Syria. As a hedge against economic uncertainty, the outlook for gold prices in the second quarter of 2017 remains bullish.
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Gold prices took a beating after Donald Trump won the U.S. election back in November, tumbling 10% and ending the year at $1,162 per ounce. In the first three months of 2017 though, gold rebounded, advancing eight percent in the first quarter, closing out March at $1,251 per ounce.
Gold came back into focus following the Wall Street “Trump Bump.” Gross domestic product (GDP) data in 2016 was abysmal, and the Federal Reserve was dovish on the economy. Moreover, Trump had to shelf his healthcare plan. This raises questions as to whether the president will be able to deliver on his other election campaign promises, which are the cornerstone of his pledge to get annual U.S. GDP to four percent.
Uncertainty abounds, and this is good for gold and silver prices.
But the biggest jolt for precious metals comes from geopolitical tensions. And gold is getting a lot of support over political tensions with North Korea, Russia, and Syria. First, tensions are reaching a boiling point with North Korea. The hermit state, led by, in John McCain’s words, a “crazy fat kid,” has been advancing its nuclear weapons program by test firing intercontinental ballistic missiles (ICBMs), which is a violation of U.N resolutions.
Where the Barack Obama administration might have, at best, drawn a line of zero consequence in the sand, the same cannot be said for the current U.S. president. Trump has vowed to get tough on North Korea. In addition to conducting regular military games with South Korea, Trump is sending an armada to the North Korean peninsula, and Japan is sending warships to join the U.S. fleet in an attempt to deter North Korea’s nuclear ambitions.
Not to sit by too idly, Kim Jong-Un, the high-living, American-whiskey-loving North Korean leader, who recently had his half-brother assassinated, has warned of a pre-emptive nuclear attack on the U.S. if it shows any signs of aggression.
While Kim Jong-Un has blown hot air before, this time it’s different. China, which is responsible for 90% of North Korean trade, has threatened never-before-seen measures, such as restricting oil and other imports, should the country conduct any additional nuclear tests. (Source: “Chinese state tabloid warns North Korea against nuclear test,” Reuters, April 12, 2017.)
China knows that Trump is a president who honors his promises, and the U.S. has decided that it’s time to stop North Korea from conducting any further nuclear tests. The U.S. has stressed that stronger sanctions are the most likely course of action, but every option is on the table.
As the tension rises, so do gold and silver prices. A short-term spike of gold prices to $1,300 per ounce is possible in the coming days, should North Korea try to face off with the U.S. and Japan.
Russia Calls U.S. “Primitive and Loutish”
Even if China’s warning to North Korea to stand down is successful, gold should get additional support from ongoing concerns with Syria and Russia.
Less than 72 hours after a deadly sarin gas attack in the Udlib province of Syria claimed the lives of 87 people (including many children), President Trump targeted the Shayrat airbase in the central part of the country with 59 Tomahawk cruise missiles.
Washington blamed the Syrian government, led by Bashar al-Assad, for the gas attack, although, not surprisingly, Assad denied responsibility. Russia, of course, has been supporting the Syrian regime, and there is some evidence to suggest that Russia knew about the planned gas attack but did nothing.
Russia condemned the airstrike and said that the U.S. was just one step away from clashing with Russia’s military. Donald Trump responded by saying Russia was backing “an animal.” Despite the barbs, Putin has chosen to meet Rex Tillerson after the U.S. envoy met with Sergei Lavrov. (Source: “Trump Exclusive: We’re Not Going Into Syria,” Fox Business, April 11, 2017.)
That meeting, however, can’t help but be less than civil. Trump has been urging improved relations with Russia, which were sorely strained under Obama, but the Kremlin’s insistence at backing al-Assad has put that in jeopardy.
Just before the meeting, Russia’s Deputy Foreign Minister, Sergei Ryabkov, said the rhetoric used by the U.S. is ‘primitive and loutish.” At the same time, Russian President Vladimir Putin said the level of trust between Washington and Moscow has seriously deteriorated since Trump took office. (Source: “U.S. rhetoric ‘primitive and loutish’, says Russian official ahead of Rex Tillerson talks,” Independent, April 12, 2017.)
And the future looks just as uncertain. U.S. Treasury Secretary Steve Mnuchin said the U.S. would announce additional sanctions on Syria. Meanwhile, Nikki Haley, U.S. ambassador to the U.N, said the Trump administration would take further action if needed.
That potential for action could also be interpreted by North Korea as a sign that the U.S. is not afraid to use force. This should also make countries like Mexico and China sit up and take notice. If Trump’s not afraid to use military force, what’s to say he’ll back down from his proposed trade wars?
Whether tensions deescalate, gold will remain on everyone’s radar as uncertainty abounds. As a result, gold prices could easily soar to the November 2016 pre-election levels, near $1,300 per ounce.
Should an actual war break out between the U.S. and North Korea or Syria, all bets are off on a ceiling for gold prices.
