The gold price hit a two-month high on Thursday (August 10) as growing tensions between the US and North Korea boosted demand for safe-haven assets.
Earlier this week, US President Donald Trump reacted to North Korea’s nuclear weapons threats by saying they “will be met with fire and fury.” Following his statement, the Asian country laid out detailed plans on how it will launch a missile strike on military bases in Guam.
On Thursday, Trump’s response further escalated tensions as he said his warning may not have been “tough enough.”
This increasingly aggressive exchange between the two nations has turned investors to safe-haven assets such as gold and silver as geopolitical uncertainty continues to grow.
“The story today is North Korea and there was nothing in the earnings that was bullish enough to pull people away from focusing on North Korea,” said Chuck Carlson, CEO at Horizon Investment Services in Hammond, Indiana.
Similarly, commodities analyst Jonathan Butler of Mitsubishi (TSE:8058) said that for now, the uptrend is very much intact in gold as the metal reacts to geopolitical events.
The gold price has surged more than 11 percent since the beginning of the year, and almost 2 percent since Monday (August 8). But the metal is still below the $1,300-per-ounce mark, with some analysts arguing that risk might not be correctly priced in by the market.
“Prospective risks are now rising and do not appear appropriately priced in,” Bridgewater Associates founder Ray Dalio wrote in a LinkedIn blog post. “The emerging risks appear more political than economic, which makes them especially challenging to price in.”
As result, the hedge fund manager is recommending that investors allocate 5 to 10 percent of their portfolios to gold.
“We can also say that if the above things go badly, it would seem that gold [more than other safe haven assets like the dollar, yen, and treasuries] would benefit,” he added.
Similarly, Adrian Day of Adrian Day Asset Management recently told the Investing News Network that he thinks it is a very good time to invest in gold and in gold stocks. Click here to listen to the full interview.
Other factors supporting the gold price include a softer dollar and US data pointing to a moderation in inflation, which could slow the US Federal Reserve’s interest rate hike pace. That is good for gold, which tends to fare better when interest rates are low.
As of 4:00 p.m. EST on Thursday, gold was trading at $1,284.50 after touching a more than two-month high of $1,287.73 earlier in the day.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.