According to data from Bloomberg, the price of gold on Wednesday rose as much as 1.59% to £1,276 ($1,658, €1,412), while silver spiked 2.61% to $16.84 as some investors looked to safe-haven assets following the growing row.
The moves followed comments from Trump on Tuesday night that North Korea would face “fire and fury like the world has never seen”, if it continued to threaten the US along with its attempts to build a nuclear warhead that could hit the western US.
Predictable response
Michael Hewson, chief market analyst at CMC Markets, said these comments brought an entirely predictable counter response from Pyongyang.
He said: “The response that the North Korean nation was considering a missile strike on the US base in Guam was the equivalent of a two fingered response to the US president, and there is a danger that this war of words between two leaders with large egos could get out of control.”
Core asset
In the event that war should break out, which leads to an acceptance of further loose monetary and fiscal policy in the US, Ned Naylor Leyland, manager of the Old Mutual Gold & Silver Fund, expects a falling US dollar real yield environment.
This, he says, would give renewed, and sustainable, impetus to monetary metals prices.
“Institutional investors appear to be, once again, considering an allocation to gold,” Naylor Leyland said. “Current institutional allocations are at their lowest, relative to historic levels. Should they start re-allocating, we believe a big move in global gold prices will inevitably ensue.
“Gold, of course, is already a core asset class for central banks, the super-rich and what are classified as ‘the global poor.’ Should the North Korea situation develop it may just prove to be the catalyst to push the institutional world to commit flows back to this asset class on a sustained basis.”
Bitcoin
In addition to buying gold and silver, Hewson noted markets have been taking precautions against an escalation between the two nations with haven buying also taking place in the Swiss franc and the yen.
“Though why anyone would want to buy a currency which is on the front line of a possible conflict is beyond me,” he added. “Maybe that’s why Bitcoin is finding its own lease of life as well as a haven of its own in these troubled times. A currency that has no central bank and no issuing authority and can only be accessed digitally, is as likely a candidate for a haven as anywhere else.
“Equity markets have behaved as you would expect by selling off sharply, an entirely predictable outcome at any time but more so when volatility levels are as low as they are now, which suggests that these moves lower have the potential to gather pace unless the rhetoric gets dialled back.”
