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How Does North Korea Fare For Gold Compared To Other Geopolitical Events?

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(Kitco News) - Gold’s safe-haven status made a comeback this week as tensions between North Korea and the U.S. rose, with the metal, for the third time this year, rising within striking distance of $1,300.

But, according to one U.K.-based firm’s research, the metal’s haven rally may prove to be short lived, as in the past.

“While we think that the chances of a full-scale war are quite slim, there remains huge uncertainty as to how the current geopolitical crisis will play out and this may support gold prices over the coming weeks. However, on past form, gains might not be sustained,” said Simona Gambarini, commodities economist for Capital Economics, in a report Friday.

Weaker U.S. economic data and continued uncertainty stemming from North Korea have helped push gold prices higher Friday. The metal jumped to two-month high this week, last trading at $1293.30 an ounce.

Gambarini analyzed gold’s price action during several major geopolitical events since 1985, including military conflicts, civil wars, terrorist attacks as well as riots and sanctions. And, according to the research, the yellow metal’s safe-haven status doesn’t usually last long.

“The price of gold tends to rise in anticipation of a conflict but often falls when tensions turn into a full-blown war. Gold thrives in periods of elevated uncertainty and the start of an armed conflict partly erases that,” she explained. “US-focused events tend to have a much bigger impact on the price of gold.”

She added that not all conflicts had an impact on prices. “Large market movements have mainly been observed in conflicts between major economies and conflicts that threaten supplies of key commodities – particularly oil,” she wrote.

However, the current conflict between North Korean leader Kim Jong-un and President Donald Trump could continue to support gold prices.

“The upshot is that until there is some certainty as to how the current geopolitical situation will evolve, gold prices are likely to remain well supported and could even rise above $1,350 per ounce, which hasn’t been breached since the Brexit referendum last year,” Gambarini wrote.

“On the other hand, if Trump’s threats prove to be nothing more than inflammatory rhetoric – as on previous occasions – we would not be surprised to see the gold price retreat as the focus of investors returns to Fed tightening.”

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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