Korea threatens, Russia warns, the US bombs, and gold continues to rise

Geopolitical tensions around the world are growing week by week, having a positive impact on gold prices. In recent days, investors' attention has been focused on threats...

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  • Author of the entry: Mennica Skarbowa
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Geopolitical tensions around the world are growing week by week, which is having a positive impact on gold prices. In recent days, investors' attention has been focused on threats from North Korea, the cooling of relations between Moscow and Washington, the powerful bombing of an ISIS base in Afghanistan, the upcoming presidential elections in France, and the US president, who shocked the markets by claiming that "the dollar is too strong."




After the price of gold exceeded $1,270/oz last Friday, reaching its highest level since early November, it was clear that the markets were affected by the prevailing tension. After the weekend, however, the echoes of the raid on the Syrian military basesubsided somewhat in the face of comments by Fed Chair Janet Yellen, who reignited expectations of interest rate hikes in the US.

As she stated in a note published on Monday, a gradual increase in interest rates is entirely justified and, if the economy continues to perform well, the increases should continue, but in such a way as to prevent the economy from "overheating." However, gold did not react with a decline in prices thanks to the words of US Secretary of State Rex Tillerson, who in the meantime stated that the strike on Syria was also a warning to other countries, including North Korea.


The price of gold rises along with tensions

On Tuesday, amid mounting geopolitical tensions, gold prices rose by nearly 2%, causing the spot price of the metal to reach $1,275.16. This time, North Korea threatened a nuclear attack on the United States if any aggression were to come from US Navy ships stationed in the western Pacific.

On Wednesday, the metal gained again, reaching $1,279.80/oz on the spot market. During a telephone conversation with Donald Trump, Chinese President Xi Jinping emphasized the need to find a peaceful solution to the tensions on the Korean Peninsula, but he turned out to be the only mild-mannered politician that day. This was particularly evident in the case of Rex Tillerson, whom Vladimir Putin received in Moscow with ostentatious coldness, stating that trust between Russia and the United States had "eroded."

Meanwhile, in France, the main contenders in the presidential race – centrist Emmanuel Macron and far-right Marine Le Pen – are being chased by a far-left candidate. French polls are beginning to show various extreme scenarios, further contributing to the prevailing tensions.


Is the dollar really too strong?

On Thursday, Donald Trump himself weakened the dollar by stating that the US currency was "too strong" and that he would prefer the Fed to keep interest rates low. It was these words, as well as the dropping of the "mother of all bombs" – the most powerful non-nuclear missile at the disposal of the US army – on an ISIS base in Afghanistan, that caused gold to rise to USD 1,288.64 per ounce on the spot market.

Friday brought stabilization for the increasingly strong gold, mainly due to low market liquidity related to Good Friday celebrations. As a result, the week ended at $1,287.70 per ounce, and the increasingly tense geopolitical situation in the world does not indicate a high probability of a significant correction.

Marianna Wodzińska
Head of Trading
Mennica Skarbowa S.A.
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