Will North Korea continue to drive gold higher?

Gold continues to gain amid a risk-off environment. Will the ongoing threat posed by North Korea drive gold into levels not seen for many years?

Source: Bloomberg

Gold prices have been storming higher over recent weeks, with the threat of a nuclear war providing plenty of reasons to buy one of the biggest safe-haven plays out there. There are a number of reasons why people will be moving their money into gold. Firstly, the likeliness of another rate-rise within 2017 is fading, and secondly, the ongoing crisis within Washington as markets are increasingly feared over whether the debt ceiling would be raised. We have seen the answer to that last question, with a three-month extension agreed yesterday between Democrats in congress and President Trump. However, there remains plenty of reasons to expect gold to continue its ascent for now.

This week has been an almost carbon copy of the last. North Korea has been ratcheting tensions at the beginning of the week, with the latter half of the week seeing less talk, and so less tension, for the markets to deal with. Crucially, while we saw markets gradually shifted back into risk assets in the second half of last week, we are seeing a much more apprehensive approach this time around. Much of that seems to be attributed to the fact that we have such high expectations of another test from North Korea, fuelling yet another leg higher for safe-haven assets. To some extent, this could be an issue which will rumble on indefinitely. While North Korea is unwilling to give up or slow the development of nuclear weapons, the rest of the world is unlikely to actually take military steps, as it could lead to a huge loss of life in South Korea and other neighbouring nations. With China saying that they would back North Korea in the event that the US strikes first, we are seeing a standoff which will likely raise tensions, but offer little in the way of action. With that in mind, could this continue to raise gold prices for some time yet?

Looking at the monthly gold chart, we can see that we appear to be in a follow-up stage to the bullish wedge breakout seen back in early 2016. The subsequent retracement after that breakout took us into the 76.4% Fibonacci level at $1124, with price pushing higher since. The break through trendline resistance seen last month looks like a possible precursor to a break through $1375, which would continue the trend of higher highs and higher lows seen over the past year. Should price break through that level, there is little reason to doubt the ability to push onwards from there.

Meanwhile, on the 4-hour chart, it is clear that the trend remains very consistent and reliable of late. That means we will be able to unmistakably see when price breaks down from the trend. As such, while price remains above the $1331 support level, further appreciation seems likely over the short term.

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