Is this a Fool’s Gold Rally?

It seems now that everybody is getting in on the gold rush as the price of the precious metal powers ahead and now sits comfortably at $1,343.

So the question is now, has gone run too far too quickly? Are we overestimating the situation on the Korean peninsula and is there really a military conflict in the making?

Gold is up more than $100 in the last 6 weeks as tensions between the US and North Korea reach boiling point over the latter’s actions by conducting missile and nuclear tests, and even going as far as the threaten American territory by striking the US territory of Guam.

For the last 5 years, we have seen the same situation with North Korea threating to nuke South Korea and the US only to eventually come to the negotiating table to settle their differences by peaceful means,

The only difference this time is that they have pushed things a little further which many believe is just a way to get a better negotiating position when the inevitable happens and they engage in talks with their arch enemies.

So where is the danger for gold in all of this? Well firstly, the market has priced in further tensions between North Korea and the international community and when North Korea finally comes to their senses and understands that any war with the US will wipe them off the map and we know Kim Jong Un is crazy but not that crazy.

So the danger for gold is a sharp reversal which could come at any time as the threat subsides and there could be many investors with long positions in gold who are left holding the bag with substantial losses.

So the wise move may be to take some profits now or at the very least, have a good stop loss in place and be ready for when the change of trend comes.

This article was prepared by FIBO Group analyst Andrew Masters.