Gold may temporarily weaken
Published on 04.09.2017 15:35

The gold price hit its highest level in nearly a year in today’s trading session on the back of North Korea’s latest weapons test and further US dollar weakness.

In what seems to be a situation that is spiraling out of control, North Korea launched another nuclear test over the weekend which was its biggest to date and comes just days after they launched a missile over Japan and into the Pacific Ocean.

The news left investors rattled and sent them piling into safe haven assets such as gold.

The markets’ reaction seems similar to when missile launches have taken place in the past, investors sell stock and rush to safe havens,” said Hussein Sayed, chief market strategist at FXTM.

“An H-bomb is undeniably different from the previous missile launches or nuclear tests, it’s a game changer for North Korea’s deterrent strategy. However, the biggest question to investor’s remains what’s next? Will the tensions lead to negotiations or war?” he added.

Gold has now jumped over $50 in the past week as the chances of military conflict on the Korean peninsula draw closer and closer but some analysts advise to proceed with caution because if the situation suddenly calms down as it did in previous times, the gold price may reverse sharply.

"If the tensions in Asia increase because of North Korea, gold and other safe haven assets are supported. But if tensions ease again gold will probably ease as well," said Georgette Boele, senior FX strategist at ABN Amro

"We hold the view a recovery of the U.S. dollar will push gold prices lower towards $1,300 or below in the near term but in this scenario we don't expect an escalation of the situation with North Korea," she added.

The material published in on this page is produced by the FIBO group companies, and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC; furthermore it has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

Andrew Masters

Analyst

The world of trading has no boundaries

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 72% of retail investor accounts lose money when trading CFDs with this broker. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

×

Risk warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 72% of retail investor accounts lose money when trading CFDs with this broker. Before deciding to trade foreign exchange you should consider whether you understand how CFDs work, your investment objectives, your level of experience and readiness of taking risk. The possibility exists that you could sustain a loss of some or of all of your initial investments and therefore you should not risk more than you are prepared to lose. Please seek independent financial advice if necessary.

Important notice
By clicking "Continue" you will be redirected to the website operated by FIBO Group, LTD company registered in BVI and regulated by FSC. Please familiarize yourself with the Customer Agreement through the link. Click "Cancel" to remain on this page.