The initial reaction to President Trump's bellicose statement about unleashing "fire and fury like the world has never seen" against North Korea was subdued on Tuesday afternoon. However, the narrative began to take fuller shape when it was revealed that intelligence agencies believe the rogue regime in Pyongyang has successfully miniaturized a nuclear warhead that is light enough to travel on an intercontinental ballistic missile (ICBM).
In response to the growing tensions between a potentially nuclear North Korea and the Free World, markets went into panic mode late on Tuesday, and this is carrying over to the next trading day. Spot gold absorbed considerable safe-haven demand, jumping more than $12 per ounce early on Wednesday morning. The yellow metal added 1% to trade at $1,272.20/oz. Spot silver gained 2% to trade at $16.75/oz.
Platinum was up on Wednesday while palladium was about 1% lower, widening the spread between the two metals.
Here's a look at yesterday's close:
Gold: $1,260.80/oz (+$3.50, +0.28%) Silver: $16.43/oz (+18¢, +1.11%) Platinum: $969/oz (+$3, +0.31%) Palladium: $888/oz (+$12, +1.37%)
The precious metals were easing back from their initial spike this morning, but virtually all of the action is related to concerns about how escalating tensions with Pyongyang could disrupt markets, or even trigger a war. After falling into the red at the tail-end of Tuesday's trading session, shares in the U.S. opened modestly lower again on Wednesday. The dollar played no major role, as the USD was down just 0.1% to 93.55 on the DXY index.
Not surprisingly, all attention has turned to the mounting problem at hand: Will North Korea really target the U.S. mainland with a nuclear weapon? Do they truly have nuclear capabilities, or is this an elaborate bluff by the regime of Kim Jung-Un? Global stocks were down sharply, particularly in Asia. Shares in Europe were also deeply in the red.
North Korea is said to potentially be targeting the island Guam, a U.S. territory in the Pacific that houses a huge U.S. naval and military base. It also poses a clear threat to key American allies in the region such as South Korea and Japan. Depending on how far the geopolitical stand-off goes, we could see a prolonged period of uncertainty for markets. This would undoubtedly drive greater safe-haven demand for gold, which is traditionally seen as a stable asset during times of turmoil. If nothing else, the rhetorical response from Trump and the rest of Washington against North Korea has been forceful and swift, although a diplomatic solution to the persistent Korea problem has always been the most desirable outcome.
For a bit of actual economic news rather than geopolitical doom-and-gloom, the Labor Department reported that productivity among American workers rose by 0.9% during the second quarter. This is surely welcome news after 2016 was the first year in which overall productivity in the U.S. dropped since 1982.
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