Direxion Shares Exchange Traded Fund Trust: How Could Trouble Brewing in North Korea Shake Up the Gold Market?
Today, North Korea fired another missile. What does it mean for the gold market?
Kim Jong-un strikes back. On Friday morning (according to Japanese time, on Thursday evening according to GMT), North Korea launched a missile that flew over Japan’s northern Hokkaido far out (about 2,000 km) into the Pacific Ocean. According to South Korea’s military, the missile flew for about 19 minutes over a distance of about 3,700 km – far enough to reach the U.S. Pacific territory of Guam.
The launch followed sharp threats from North Korea. The regime stated:
“(…) the four islands of the [Japanese] archipelago should be sunken into the sea by the nuclear bomb of Juche. Japan is no longer needed to exist near us.”
The threats concerned not only Japan, but also the U.S. North Korea said that the U.S. should be “beaten to death like a rabid dog” for the “heinous sanctions resolution”. And the regime came out with a peculiar proposal:
“Let’s reduce the US mainland into ashes and darkness. Let’s vent our spite with mobilisation of all retaliation means which have been prepared till now.”
Well, it seems that Kim did not like the fresh UN Security Council’s sanctions in response to the recent North Korean nuclear test. Monday’s unanimously passed resolution imposed a ban on the country’s textile exports (textiles are the second-biggest export in North Korea) and a ceiling on the country’s imports of crude oil. What does it all imply for the gold market? Well, the new missile launch and threats came when the tensions deescalated and everyone thought that the conflict had eased somewhat. But North Korea once again escalated its rhetoric and carried out a new provocation. This is bullish for the gold market. Indeed, the spot gold prices increased after the launch of the missile (about 22:00 GMT), as one can see in the chart below.
Chart 1: Gold prices over the last three days.
Thus, the price of gold may again be supported for a while by the renewed tensions about the Korean peninsula. However, investors should remember that such a support is likely to be temporary – and gold will also be affected by macroeconomic factors. For instance, the pickup in U.S. consumer inflation in August may be a headwind for gold, if better-than-expected inflation data increases the odds of a Fed hike in December.