The Strategist

Trump cancels summit with North Korea, gold jumps, dollar falls

05/25/2018 - 11:43

The decision by US President Donald Trump to cancel the meeting with North Korean President Kim Jong-un scheduled for June provoked a rise in the value of gold on the world market. On Thursday, the metal quotes, after a week and a half break, soared above the level of $ 1,300 per troy ounce. However, in the absence of further escalation of tension in the US-DPRK relations, the price has a chance to return below the mark that has already become psychological.

(stephan) via flickr
(stephan) via flickr
Yesterday the cost of gold for the first time since May 15 rose above the level of $ 1,300 per troy ounce. According to Bloomberg, the price rose to $ 1,306.56 per troy ounce, which is 1.1% higher than the closing value. Prices for other precious metals also increased. The cost of silver rose by 1.2%, to $ 16.65 per troy ounce, platinum - by 1.3%, to $ 914.5 per ounce.

The rise in prices for precious metals was provoked by reports that US President Donald Trump sent a letter to North Korean leader Kim Jong-un. In the letter, American President notified his Korean colleague that the summit scheduled for June 12 in Singapore would not take place. Mr. Trump said that he does not consider it expedient to hold the summit because of the latest "hostile" statements of the DPRK. The reason for this was the statement of the North Korean Foreign Ministry criticizing the recent statements of US Vice President Mike Pence, who compared the DPRK with Libya and said that if Pyongyang does not abandon the nuclear program, it is impossible to exclude development of events under the Libyan scenario. According to the Deputy Foreign Minister of the DPRK, Choe Son-hui, it was the example of Libya that made the country strengthen its defensive capacity.

The failure of the talks between the United States and North Korea, scheduled for June, was expected to cause an increase in the value of gold. Gold is a classic shelter asset, where investors flee at a time of growing geopolitical tensions. Additional support for gold quotations was provided by the protocol of the last meeting of the committee on operations on the open market of the Federal Reserve System published on Wednesday. It confirmed the expectations of market participants that the regulator plans to raise the key rate to 1.75-2% at the next meeting in June. However, the Fed has retained cautious language that does not imply an aggressive tightening of monetary policy. "During the meeting it was noted that it is premature to conclude that inflation will remain at about 2%, especially after several years, during which inflation stubbornly remained below the Fed's target level of 2%," the protocol says. As a result, on Thursday the rate of the American currency to the leading world currencies fell by 0.2-0.8%.

However, in the absence of further escalation of tension between the United States and North Korea, strong growth in gold prices should not be expected, experts say. According to Carsten Menke of Julius Baer, during the next three months the cost of precious metal will tend to the level of $ 1275 per ounce. "Despite the positive long-term forecast with benchmarks at the level of $ 1325-1400 per ounce, we do not see reasons to hold a "bullish" position on the metal market. Since the cycle of raising the rates of the US Federal Reserve and the dollar will determine the dynamics of gold," said Mr. Menke.