In addition to the rising tensions between the United States and North Korea, markets were also responding—negatively—to some disappointing economic data points from the U.S. Labor Department on Thursday morning. This drove gold prices significantly higher in early trading. The yellow metal jumped above the $1,280 mark to $1,286.30/oz.
Spot silver also surged 27¢ to $17.19/oz, blowing past a new two-month high. Platinum gained 0.8% to trade at $980/oz while palladium crossed above $890/oz, up more than 1.1%.
Geopolitics and Labor Statistics
Although the geopolitical problem (and military challenge) of the Korean Peninsula has been a reality for decades, the escalating rhetoric between Pyongyang and the White House has raised everyone's fears of a costly, complicated, and bloody conflict. Moreover, an actual war with North Korea would have the biggest impact on the U.S. and China, the world's two largest and most interconnected (and interdependent) economies. South Korea, a tech-focused modern economy which accounts for roughly 2% of global GDP in its own right, would also be devastated—and would undoubtedly bear the brunt of the human toll, as well.
The North Korean leadership is claiming that within the next month it will demonstrate its nuclear arsenal by firing missiles around the waters surrounding Guam, a strategic U.S. territory and military complex in the Pacific due south of Japan and South Korea. Such a test (i.e. attack) fired from Korea would necessarily have to fly over Japan and its waters, exacerbating the security nightmare these weapons pose.
Of course, nuclear brinksmanship is a common tactic of the North Korean regime, and it is notorious for exaggerating its capabilities in a bellicose show of machismo. The difference now is: a) our intelligence agencies have credible information that Pyongyang does indeed have nuclear capabilities; and b) the new U.S. administration has responded with forceful rhetoric that is, perhaps uncharacteristically, frank about American military might.
In less dire news, a pair of discouraging bits of data gave the equity markets pause during early trading. The Labor Department reported that first-time jobless claims rose modestly to 244,000 last week. This does, however, continue to fit within the narrative of a progressively tightening job market. A figure less than 300,000 claims per week is generally seen as a benchmark for a healthy labor market, and initial jobless claims have remained below this marker every single week for an astounding 2-and-½ years straight.
U.S. producer prices also fell unexpectedly during July. The Producer Price Index (PPI) slipped 0.1% when a slight increase was actually forecast. This surprise to the downside dragged the dollar lower. The DXY index gave up all of its gains this morning, returning to unchanged at about 93.55. While recent dollar weakness has been due in no small measure to a rallying euro, the common currency has pulled back to about $1.17 (meaning, in terms of exchange rates, the dollar is worth €0.85. Instead, the Japanese yen is now picking up steam against the USD, trading under ¥110 to the dollar for the first time since June.
Stocks around the world sank as the threats back and forth between the U.S. and North Korea are digested. European and Asian indices were all in the red, although Japan's Nikkei 225 managed to lose just 0.05% overnight. The FTSE 100 in London sank 1.4% by 10 am ET in New York, and shares in the U.S. were also sharply lower. Each major index on Wall St was down between 0.5% and 1%.
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