North Korea’s Defiance of Trump Pushes Gold to Forefront

Gold is likely to be in focus this week after taking a backseat last week to the French elections, central bank meetings, and U.S. policy announcements. Pushing it back to the forefront will be the possibility of escalating military activity in North Korea based on events over the week-end.

Demand for the safe-haven metal fell dramatically last week as investors cashed-in their long positions after the financial market’s favorite candidates finished one and two in the first round of the French presidential elections.

With centrist Emmanuel Macron already called the winner over far-right leader Marine Le Pen in the second round of the elections, one of the reasons to hold gold as a safe-haven disappeared rather quickly early last week.

Rising demand for higher-yielding assets kept a lid on gold prices throughout the week as investors reacted to the positive events out of France and robust earnings from several major U.S. corporations.

Also holding gold investors hostage was anticipation of the Trump administration’s tax reform plan and the possibility of a U.S. government shutdown.

Gold reached its low for the week on the same day that U.S. equity markets stopped going up and Trump released his tax plan. It could have been a coincidence, but then again the two asset classes did work in sync last week.

While most of the price action was predictable last week because everything seemed to be packaged nicely into the all-assuming “greater demand for higher risk assets” category, traders primarily ignored the still brewing events in North Korea. There were a few headlines from the politicians, but for the most part, this story was a non-event.

Treating a potential powder-keg like North Korea as an after-thought last week may have created complacency in the financial markets. And from complacency, we usually get volatility. Given the events over the week-end, I think traders are going to return to gold in a big way this week.

While gold took the proverbial backseat to the aforementioned events last week, I think that this week is going to be another story.

Although we have a Fed meeting on Wednesday and the U.S. Non-Farm Payrolls report on Friday, I believe that gold traders will shrug off these events and shift most of their focus on North Korea.

On Saturday, just a few hours after Secretary of State Rex Tillerson called for new tough action toward North Korea, the rogue nation fired a missile as part of another test of its arsenal. The action by North Korea was in direct defiance of the U.S.  Not only did North Korea thump its nose against the U.S. and President Trump, but according to the President it also “disrespected the wishes of China” with its missile test.

The market does not expect the Fed to raise rates this week and the jobs report is not likely to be a major market moving event. This will give gold investors plenty of time to react to any events regarding North Korea.

Given the events last Friday, I think we’ll know how gold traders feel about North Korea on Monday’s opening. If it opens higher then we’ll know that this will be the main driver of gold’s price action this week.