The gold price hit its highest level in nearly a year in today’s trading session on the back of North Korea’s latest weapons test and further US dollar weakness.
In what seems to be a situation that is spiraling out of control, North Korea launched another nuclear test over the weekend which was its biggest to date and comes just days after they launched a missile over Japan and into the Pacific Ocean.
The news left investors rattled and sent them piling into safe haven assets such as gold.
The markets’ reaction seems similar to when missile launches have taken place in the past, investors sell stock and rush to safe havens,” said Hussein Sayed, chief market strategist at FXTM.
“An H-bomb is undeniably different from the previous missile launches or nuclear tests, it’s a game changer for North Korea’s deterrent strategy. However, the biggest question to investor’s remains what’s next? Will the tensions lead to negotiations or war?” he added.
Gold has now jumped over $50 in the past week as the chances of military conflict on the Korean peninsula draw closer and closer but some analysts advise to proceed with caution because if the situation suddenly calms down as it did in previous times, the gold price may reverse sharply.
"If the tensions in Asia increase because of North Korea, gold and other safe haven assets are supported. But if tensions ease again gold will probably ease as well," said Georgette Boele, senior FX strategist at ABN Amro
"We hold the view a recovery of the U.S. dollar will push gold prices lower towards $1,300 or below in the near term but in this scenario we don't expect an escalation of the situation with North Korea," she added.