The gold market is quiet in early action Monday to begin the new trading week, but the yellow metal is not likely to fall far any time soon as several issues keep the safe haven bid alive and well.
On Friday, North Korea once again tested an ICBM that apparently has the potential to strike the U.S. mainland. This is being seen as yet another act of defiance by the North Korean regime, and the time for action could be approaching.
President Trump recently expressed frustration with China for not doing more to control North Korea. It was hoped that China may be able to exert heavy influence over the North due to its status as the North’s largest trading partner. Thus far, however, any Chinese influence over North Korean leadership does not appear to be enough to force the regime to rethink its nuclear ambitions.
Japan has become more vocal in recent weeks voicing its concerns over North Korea’s missile capabilities, and the U.S., Japan and South Korea have been actively conducting exercises to counter the threat.
Although military action may be a ways off, diplomatic efforts have thus far not been productive. The U.S. and some key allies may now look to be more aggressive with North Korea and attempt to ramp up the economic pressure on the isolated nation. This could be done through various means including stiff fines and penalties for banks and others that do business with the nation. It has been suggested that much of the country’s nuclear program has been financed through various off-the-books business dealings such as arms sales and forced labor. Whatever the case may be, this situation could affect global markets with any further escalation, and hopefully a peaceful resolution will be found.
In the meantime, however, gold and other hard assets may remain well-bid as anxious investors seek their perceived safety.
Also on the geopolitical front, Russia has said it will look to expel 750 diplomats in retaliation for U.S. sanctions. This is yet another sign of strained relations between the U.S. and Russia.
A major test may be approaching for gold. The market has been trending higher and is nearing its recent highs. If the yellow metal is able to break out above those previous highs, others may want to climb on the bandwagon and the metal could be off to the races.
In addition to the numerous geopolitical issues currently being faced by global markets, the gold market may also benefit from a more dovish-sounding Fed and weaker dollar index. It appears that another rate hike will likely not be seen until the end of the year, and some are questioning just how aggressive the central bank may be when it comes to any further tightening of monetary policy.
The dollar index has been moving lower on a lack of inflation, dovish central bank rhetoric and lack of major tax reform or fiscal spending legislation being passed. These factors could fuel further upside in the gold market, and the metal could be on the verge of a protracted bull market as the stock bull market may be drawing to a close.