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LAWRIE WILLIAMS: Gold surges as Kim ups provocation

Just when it was beginning to look as if the U.S.-North Korean combative rhetoric and provocative actions were beginning to ease, Kim Jong-Un upped the ante again with a missile launch which, apparently overflew Japan to land in the Pacific Ocean to Japan’s east.  While not posing a direct threat to either Japanese or U.S. territory or bases, the launch appears to be both a demonstration of North Korea’s ballistic missile capabilities and a further test of President Trump’s mettle with regard to possible military action against the rogue state.

Trump’s options in this respect are not strong.  While the USA undoubtedly has better military hardware than North Korea, the latter’s huge military strength in numbers, and the short distances between the latter and U.S. allies, South Korea and Japan, coupled with unpredictable leadership on both sides, could well lead to a ground war with unpredictable consequences.  Such a war would undoubtedly put the South Korean capital, Seoul, with a population of around 25 million in the city and surrounding districts, right in the firing line, while major Japanese cities would be within comfortable missile range.

On the other hand the U.S. has substantial firepower at its disposal, both in South Korea, and offshore in the form of its carrier-led Pacific fleet which could rapidly be deployed within strike range of the North Korean capital, Pyongyang, with its population estimated at over 3 million people.  The real danger here is that the unpredictable North Korean leadership might escalate the situation using nuclear weaponry to try and  take out the U.S. fleet and the big military base on Guam, south south east of Japan, and east of the Philippines.  It may calculate that the U.S. would not respond in kind given the proximity of North Korean targets to China and South Korea which could both be vulnerable to radiation fallout, although we suspect that even the remote possibility of nuclear annihilation will stay Kim Jong-Un’s hand.

But the latest North Korean missile test gave an added fillip to the gold market wit the price moving up to around $1,325 as I write.  It will have been helped by another very  big increase in the GLD gold holding yesterday – of 9.16 tonnes – which will have happened ahead of the North Korean missile news.  That cements the reversal in GLD – which had seen strange liquidations of around 80 tonnes between June 13th and August 9th which look to have been designed to depress the gold price – unsuccessfully as it happens- and perhaps to meet Asian and Middle Eastern demand for physical metal which appears to have continued unabated.  Since that latter date, the GLD gold holding has risen by more than 27 tonnes in under 3 weeks.  We had previously said watch GLD for a guide as to where the gold price is headed and that looks to have been good advice.

We are now coming up to the U.S. Labor Day holiday.  Gold investors with even a fairly short memory will recall that Labor Day in 2011 saw the start of the  very sharp reversal in the gold market which had been flying high reaching a record of over $1,900  just ahead of the holiday.  They will be hoping that now gold again has a bit of momentum behind it we will not see a repeat this year!

29 Aug 2017

About the author

Lawrence Williams

Lawrence (Lawrie) Williams is a well known London-based writer and commentator on financial and political subjects, but specialising in precious metals news and commentary. He is a qualified and experienced mining engineer having graduated in mining engineering from The Royal School of Mines, a constituent college of Imperial College, London – recently described as the World’s No. 2 University (after MIT).

e: lawrie.williams@sharpspixley.com

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