Gold drops as North Korea tensions subside for now

Risk-sensitive assets created large gaps at the start of this week’s trading session in Asia overnight. Index futures gapped up before pushing higher which saw the Dow future gain more than 100 points. In contrast, safe haven gold, which had hit a new 2017 high on Friday, found itself around $15 lower when trading got underway. It looks like speculators who had established positions to take advantage of a possible rise in risk aversion, were left disappointed as North Korea did not conduct another missile test at the weekend. What’s more, a weakening of Hurricane Irma over the US also dampened demand for perceived safe haven assets, and boosted the dollar slightly. However, North Korea tensions could rise again. The United Nations will be voting on new sanctions – proposed by the US – against Pyongyang today. If approved by the UN Security Council, then North Korea stands "ready and willing" to respond with measures of its own, the North's Foreign Ministry has said. So, North Korea tensions are likely to linger which should keep demand for gold and other safe haven assets elevated.

From a technical stand point, gold’s weakness also makes sense, but so far it can only be interpreted as a mere pullback from overbought levels, rather than trend reversal. After breaking above the $1300 level, the yellow metal went on to hit our next key target around the $1350 area, where the top of the bullish channel converged with the 161.8% Fibonacci extension level of the last corrective downswing. But given the prospects of a ‘gap fill’ and the overall bullish structure of price, we wouldn’t be surprised if the metal continues to push higher towards $1375 next – the 2016 high. Short-term support comes in around $1325, followed by $1300. But if gold falls below $1290 then the bulls may be in trouble. Until and unless that happens, or price forms a distinct reversal pattern at higher levels, the path of least resistance for gold remains to the upside despite its immediate-term weakness.

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.