Gold Price Rockets 04.09.17

Gold Price Rockets

Before I begin this article – I have to immediately apologise for the title. Yes you guessed it, I am indeed referencing North Korea. It is in truth a bad joke – not North Korea but my use of the word rockets. Over the last couple of weeks we have seen a significant rise in the gold price. As I sit and write this article, the price of gold is up by $12. So what has happened to the gold price and why is it up?

Gold Price Stats

The gold price currently sits at £1034.52 / $1338.85 / €1126.45 respectively. Exactly three weeks ago today the London Bullion Markets Association morning gold fix (LBMA) was £987.34 / $1281.10 / €1085.48. That is an increase of +4.77% in GBP / +4.51% in USD / +3.77% in EUR.
If we compare this information with how Sterling (GBP) was performing against USD and EUR it will give us a better focus of what has occurred in the market.

Gold Price Rise from 14.08.17

Gold Price Rise from Monday 14th August

At present GBP sits at 1 GBP:1.29442 to USD and 1 GBP:1.08850 to EUR. Three weeks ago today GBP sat at 1 GBP:1.29774 and 1 GBP:1.10106 to EUR. In the three weeks sterling has depreciated virtually nothing against USD (about 0.00751% – I almost omitted this from the article but thought it would be fun to include it!) and -1.14% against the EUR in three weeks. The real winner over the last couple of weeks has been the Euro with gains against most major currencies.
So the information above points more towards a slim support in the gold price from the USD weakning. As is the case sometimes, currency movements can be the cause and are usually a marker that I would use to see how gold is trading but actually, the gold price hasn’t generally been much affected by that. The Dollar has lost ground against the Euro, of approximately -0.89%, but that would have had limited effect on the gold price.
So then why has the gold price risen over 4% in three weeks?

Gold Price Analysis

In essence it is down to really a handful of reasons, one of which I alluded to at the start. But you may also be surprised to see what else has left an impression on the gold price:

Firstly and probably at the lowest end of the scale, we are just coming out of Summer. Traditionally when you study the output of trading across the end of July and August period, trading is down as many people are on holiday. That does believe it or not have some bearing on the price, not a lot of course but it has to be considered.

Secondly, President Donald Trump’s decision to go ahead with the Mexican Wall by granting four provisional contracts helped to spike the gold price. For many analysts this endeavour seemed unlikely to ever come to fruition but as is the case with Mr Trump, never underestimate him and expect the unexpected (I’m very close to start quoting Leslie Nielsen lines).

Thirdly, we have also been expecting two natural disasters to hit over the last couple of weeks. In the US, Hurricane Harvey landed in Texas and has caused significant damage across the state and neighbouring Louisiana. Also in India, Nepal and Bangladesh we have seen immense flooding following an ongoing monsoon that has displaced hundreds of thousands of people and according to the UN it is estimated to have effected almost 40 million. It has been described as one of the worst humanitarian crisis to affect the region in years.

Lastly and with no real surprise the gold price has risen because of (drum roll please) North Korea. The heightening of tension and pressure in Asia is becoming quite alarming. Firstly, you have had an increase in rhetoric over the last couple of weeks between the US and North Korea with president Trump stoking the fires. This has largely been whipped up due to the missile that bypassed Japan a week ago and this weekend’s alleged successful hydrogen bomb test by North Korea. Comments made this weekend by President Trump regarding North Korea were never going to be anything but inflammatory. The President tweeted that North Korean actions were “Hostile and Dangerous” he also wrote “North Korea is a rogue nation” and in another tweet he suggested that North Korea will only understand negotiation on one level, meaning a show of arms. Over the weekend Mr Trump also stated that any countries trading with North Korea, the US will not do business with which was more or less a direct provocation aimed at China. This is thought to have serious implications with relations over the coming weeks.

In all, the gold price as it has always been, is acting as a safeguard. As crises after crises loom, the metal is going to stay heavily supported and I cannot see how the North Korea issue is going to play out. Do I need to start work on that bunker yet? Probably. Where’s my shovel…