Gold jumped to another new high for the year, spurred by the latest North Korean provocation and a corresponding rise in risk aversion. While a rise in U.S. consumer sentiment tempered gains, the current fundamentals remains broadly supportive.
North Korea fired a ballistic missile that passed over Japan, further amplifying already high geopolitical tensions. Japan’s Abe called it “a most grave threat.” U.S. Ambassador to the U.N. Nikki Haley warned that North Korea has “violated every single U.N. Security Council resolution that we’ve had and so I think something serious has to happen.” President Trump says that “all options are on the table.”
While the North Korean tensions have been dominating the headlines recently, let us not forget geopolitical tensions remain elevated in the middle east as well:
The geopolitical tensions and the post-storm recovery in Texas are going to take up a great deal of time when policymakers return to the Beltway next week after their summer recess. This may make finding some common ground on the budget and the debt ceiling even more difficult.
Congress has a very small window between September 5th and the 29th to resolve some pretty serious issues. The agenda is now even more packed, which increases the risks that not everything gets done in time.
The dollar index broke a critical support level today at 91.92, which has some rather bearish longer term implications. There is very little in the way of additional support until well into the 80s.
I’ve mentioned this before, but it’s worth repeating today: The dollar is clearly no longer a safe-haven currency. Investors would rather buy yen as a haven, the currency of a country that was just overflown by a North Korean missile.