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LAWRIE WILLIAMS: The Trump Dilemma – To strike or not to strike? Should one buy gold anyway?

A former U.S. President – Theodore Roosevelt (the 26th to occupy the illustrious office to be precise) – is often quoted as using the aphorism “Speak softly, but carry a big stick” as being a mantra which will stand a politician in good stead.  Donald Trump might be wise to take note – but speaking softly does not appear to be part of his persona.  He certainly has the ‘big stick’ capability.

Kim Jong-Un likewise – another political leader for whom ‘speaking softly’ is not part of his make-up.  Again, the big stick part is, and that is why North Korea’s military strength, including nuclear armaments and Inter Continental Ballistic Missiles has been built up to the levels it has been.  Kim, and his predecessors, presumably sees this as his country’s only way of holding its own in the case of possible aggression by South Korea and its principal ally, the USA.  After all North Korea is still officially at war with the South – it’s just that there is only a truce between the two which has stood since the end of Korean War hostilities back in 1953. 

With Russia and China supporting the North, and America and its allies, operating under the auspices of the United Nations, the South, the Korean War was the nearest thing to a World War we have seen since 1945.  The fear now is that with unflinching hostile rhetoric being traded between the North Korean and American leaderships, there is a real fear that this could blow up into a new conflagration drawing in the superpowers.

Unfortunately Kim Jong-Un probably has the upper hand to an extent in that a conventional war involving the U.S. and North Korea would, like last time, be too costly in terms of likely death toll on both sides.  For the Americans to fight against a huge, and well equipped, army like that of North Korea would be a horrendously costly undertaking in terms of lives, logistics and monetary cost.  The U.S., if it were to use thermonuclear weaponry, could undoubtedly effectively bomb the North into submission – but at what cost in civilian lives and in nuclear radiation fallout which could devastate whole swathes of East Asia, including parts of China and America’s allies – Japan and South Korea?  That is, presumably, not a real option.  Trump’s ‘big stick’ is all very well for brandishing, but perhaps not for utilisation which is what Kim Jong-Un will be banking on.

A limited conventional weapons strike against the North’s nuclear testing grounds and missile sites might be a possibility assuming the U.S. knows where all these are, but if not (and one assumes some of these are well hidden) a retaliatory strike against U.S. bases and allied cities might be within even a crippled North’s capabilities as would undoubtedly be the deployment of land forces by the North across the border with the South – and remember that South Korea’s capital, Seoul, is only around 35 miles from the border.  And any move by the U.S. on North Korea would require China, a traditional ally of the North, to side with the Americans and mount pressure on the North’s hierarchy which may well pay no attention anyway.  But China’s domestic needs may not make siding with the Americans over North Korea a serious long-term option.  A unified Korea, controlled by the South could put American forces on China’s border and that may well not be a situation China would be prepared to allow.  Perhaps China would consider it better to have a buffer state between it and South Korea, however embarrassing such an alliance may be.

What Trump actually needs is North Korean regime change and the U.S. does not have a great track record on this.  It has indeed been successful in using its military might in changing regimes, but what it has replaced them with seems to have created, in many cases, even worse results for the populace of the nations concerned and also for overall U.S. national security.  Arguably al Qaeda and ISIL have both been spawned, and built up, as a direct consequence of U.S. regime changing ‘successes’.

North Korea, though, is something of a special case.  Unlike Saddam Hussein’s non-existent weapons of mass destruction, North Korea has developed known nuclear capabilities and is supposedly working on missile systems which may be able to target the U.S. mainland in a few years’ time, although probably not yet.  The U.S. would actually need China to initiate and enforce any regime change in the North for it to be a success, thus preserving the status quo with a China-leaning North as a buffer against a U.S.-leaning South.  One assumes this may well be what the U.S. Administration may be working on in any negotiations with China.  It needs to be a win-win solution for both superpowers.

But as pointed out above, the ‘speak softly’ approach in the so-far verbal confrontation between the U.S. and North Korea is just not a part of either the Trump or Kim psyche.   While such a rhetorical stand-off continues the idea of some kind of war between the U.S. and its allies, and North Korea and its allies (potentially China and Russia which between them could balance out American firepower) remains a media and WW3 predictors’ commenting dream.

So should one invest in gold just in case?  The answer is probably yes.  An investment in gold bullion is the ultimate wealth insurance.  The North Korean problem – at least as the U.S. Administration sees it – is not likely to go away and every time it flares up in terms of exchanges of aggressive rhetoric the gold price, as we saw a week or so ago, is likely to see a boost even if no actual military action is forthcoming.  But if it does….

Silver too may be a good investment option – in some respects even better than gold given that it tends to outperform gold when the latter is rising, although in the case of bullion one needs to hold far more in volume and weight terms to match a similar valued dollar investment in gold.  But the potential for larger potential gains should there be a military flare-up in east Asia or Europe still makes it a potentially exciting investment choice – platinum and palladium less so perhaps, but these two will also likely gain as part of the precious metals complex.  Palladium in particular has been having a good run, although perhaps not as good as its apparent supply/demand fundamentals might suggest.

21 Apr 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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