North Korea

Gold touches 1-year, intra-day high following North Korean nuclear test; yuan gains

Bullion rises by as much as 1.1pc to 1339.81 per ounce, its highest level since September 8, 2016, before slipping back to US$1,337.14

PUBLISHED : Monday, 04 September, 2017, 10:38am
UPDATED : Monday, 04 September, 2017, 10:59pm

Gold extended gains on Monday, touching an intra-day one-year high after North Korea’s latest nuclear test triggered safe haven trades, fuelling concerns that China would extend its ban on crude oil exports to Pyongyang.

North Korea risk has risen several times before, only proving to be short lived. But Sunday’s decision by the Democratic People’s Republic of Korea (DPRK) to conduct its sixth nuclear test, which is estimated to be 10 times more powerful than the previous test, is fuelling worries that this time may be different, and leading to increased support from China for punishments against the hermit nation.

SEB Bank said an extended ban on oil exports from China lasting up to one or more months could be destabilising for the North Korean economy and its leadership.

“The DPRK has raised the stakes by claiming to have the capabilities to deliver a nuclear weapon to continental US territories,” it warned in a note.

Kim Eng Tan, Sovereign Analyst, S&P Global Ratings said. “The main risk of recent developments on the Korean peninsula is that of a misjudgment by one or more parties,”

Gold, typically bought as a defensive position during periods of economic and geopolitical uncertainty, is likely to rise further, adding to a 6.25 per cent gain in the last 30 days, analysts said.

On Monday, bullion rose by as much as 1.1 per cent to 1339.81 per ounce, its highest level since September 8, 2016, before slipping to US$1,337.14.

“This is getting serious. I expect gold to test the US$1,350 level shortly,” said Jasper Lo Cho-yan, the chief strategist at King International Financial. “We may even see it test US$1,375 by year end.”

Stephen Innes, Asia Pacific head of trading at Oanda said in a research note on Monday that the big question is how the international community will respond given how ineffective the tightened UN sanctions have been at discouraging North Korea’s nuclear programme.

Demand for other safe haven assets was modestly higher, with the yen rising 0.7 per cent, the biggest gain since August 10, to 109.46 against the US dollar in early Monday action.

Meanwhile the Chinese yuan is also functioning as a regional safe-haven, outperforming its Asian peers yuan. Offshore yuan rose 0.5 per cent to 6.5313 per dollar, strongest since May and marking the 14th straight day of advances.

Regional equity markets were also under pressure as investors sought to lower risk. The Hang Seng Index fell 0.7 per cent lower at 27,751.26 but still held near a two-year high of 2,8127.90 that was hit last week.

Tokyo’s Nikkei 225 lost 0.9 per cent at 19.508.25 and South Korea’s Kospi slid 1.2 per cent while Sydney’s All Ordinaries fell 0.4 per cent.