Gold's rally has now hit a new year-to-date high, consolidating the boost derived from the US dollar correlation, plus a risk premium linked to the threat of a tightening of sanctions on China by the US President Trump after yet another North Korean nuclear missile test.
If the image of the North Korean TV announcer, who emphatically underlines the success of the latest launch despite the fallout on the territory with evident seismic effects, can make us smile, it is now official that we are no longer in a parody of the satirical film " The Interview” which three years ago unleashed the wrath of Kim Jong Hun and a “cyber attack” against the Sony Playstation, guilty of having offended the regime.
Since then, the risk of cyber attacks has become a matter of public domain up to touching the operations rooms, and it is now clear to everyone that from the US decision 10 years ago to rehabilitate North Korea from the list of countries accused of terrorism up to the bankruptcy Obama's "strategy of patience" nothing has been done, except an endless and useless list of sanctions, to avoid the current state of emergency in South East Asia.
With gold posting a 16% performance since the beginning of the year, the next target set at $1.350 is closer and certainly achievable. The growing tensions could push Trump towards the mistake of a preventive war and only an evident tightening, possibly with tangible effects, of new sanctions could stem the gold rush.
Also because this situation is curbing the Fed's impetus on rates and has erased all the good that came from the outcome of the European elections which swept away the threat of a European isolationist drift and offered investors an investment opportunity on more solid and secure markets, sheltered from political tensions evident at the beginning of the year.
But we must not forget the evolution of investment in gold in recent years also linked to a reduction in the gold reserves which, after the 2008 case, had been increased by all the Central Banks for that principle which was admitted by Bernanke himself: "When the trust reaches zero, gold beats paper”.
From 2013 on the illusion of a definitive exit from the global crisis and with eyes distracted from the "currency war", an inverse process of global reduction of gold reserves began and so prices returned to their lowest levels at the end of 2015 , then last year the turning point.
It is precisely China, which, approaching the longed-for goal of having the RMB in the official currency of special drawing rights, has begun to accumulate gold together with Russia, selling US Treasuries held in abundance.
Now the "oxen park" has arrived which, after the burn of last year's slip, has reduced the volumes on ETFs specialized in gold. On closer inspection, during this gold rush in recent months, ETFs, often inefficient in the currency component of their performances, have remained behind, entirely in favor of and partly compensated for by a real hunt for coins and ingots, which in the era of cryptocurrencies might make you smile but it marks another stage in the evolution of the investor's thought who seeks safe-haven assets in a zero-interest world and who returns to prefer physical gold…. Just like the Chinese.
Thus, if China remains the crux of the North Korean question, it is clear that a complex game is being played where China and Russia have launched an attack on the supremacy of the US dollar since 2014, to repay the US for years of humiliation in international fora and guilty of delays in freeing emerging countries in a geopolitical role now evident to all.
Russia also aspires to the Chinese goal of entering the international reserves and even if it will take time, the current weakness of the Trump Administration has provided a perfect pretext for the two allies of all time to play the North Korean "tanks" in a global Risiko where the gold will strengthen and tensions will accompany us until 2018.
