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Korea Tensions Spur Only Limited Demand For Gold, Yen and Franc

Korea Tensions Spur Only Limited Demand For Gold, Yen and Franc

2017-09-26 08:38:00
Martin Essex, MSTA, Analyst
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Talking Points

- Haven assets such as gold, bonds, the Japanese Yen and the Swiss Franc have gained from the dispute between the US and North Korea, as well as the Kurdish independence referendum.

- However, so far, there has been little sign of panic and demand for haven assets has been limited.

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The haven assets that investors move into when geopolitical risk rises have seen some demand but so far it has been limited despite a plethora of international concerns including the increasingly bellicose dispute between the US and North Korea, the Iraqi Kurds’ independence referendum, the calling of a snap election in Japan, unrest in Spain’s Catalan region and the setback for the conservatives in Germany.

The traditional bolt-holes such as gold, sovereign bonds, the Japanese Yen and the Swiss Franc have all benefited but so far there has been little sign of panic, suggesting that overall market sentiment remains broadly positive.

Korea says Trump has declared war

In the news, North Korea has argued that US President Donald Trump has declared war on it and has said that it will shoot down US bombers even if they are in international airspace. The Kurdish independence referendum has increased tensions in the Middle East. Japanese Prime Minister Shinzo Abe has called a snap election. Catalans are also pushing ahead with an independence referendum, and German Chancellor Angela Merkel has a difficult task ahead forming a coalition after the weekend’s electoral setback for her conservative CDU/CSU parties.

Yet gold, for example, remains well below the recent highs touched 18 days ago.

Chart: Gold Price Daily Timeframe (July 7 – September 26, 2017)

Korea Tensions Spur Only Limited Demand For Gold, Yen and Franc

Chart by IG

Similarly, USD/JPY has fallen only modestly over the last four sessions, EUR/CHF has dipped but not by far, the yield on the US 10-year Treasury note is just marginally lower, and the yield on 10-year German debt is actually higher Tuesday. European stock markets have fallen but in early trade this session the FTSE 100, DAX and CAC 40 are all down by very small percentages: 0.23%, 0.11% and 0.02% respectively.

This all suggests that investors are shunning excessive risk and are trading cautiously but that there’s been no sign of panic to date.

--- Written by Martin Essex, Analyst and Editor

To contact Martin, email him at martin.essex@ig.com

Follow Martin on Twitter @MartinSEssex

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