A few weeks ago, we thought that the geopolitical tensions have finally eased after North Korea announced its decision to delay the attack on the US Air-Base in Guam island.
The US President Donald Trump thought that his threats to North Korea have finally worked and led the North Korean President to back off. Trump also said that North Korea’s decision is clever, otherwise, the US response would be catastrophic.
Yet, this was only for a very short period of time. North Korea surprised the world once again with another missile test over the weekend, and the tensions now are rising to significant levels.
The United States is considering, in addition to other options, stopping all trade with any country doing business with North Korea.
— Donald J. Trump (@realDonaldTrump) September 3, 2017
Nuclear War Next?
For the past few weeks, no one was talking about a military response. All that we heard from the global powers was that they would put more pressure on North Korea.
Many UN security council emergency meetings have been called, the entire world condemned the North Korean missile tests.
However, this weekend, things have changed to a new level. For the first time ever, many countries are talking about a massive military response, not a limited one.
For the time being, we are actually living in the most uncertain period in our lifetime, where the markets will be the biggest victim.
Safe Haven Keeps On Rising
As a result of the North Korean missile test, Safe Haven assets began the week sharply higher, including Gold, Silver, Japanese Yen, and the Swiss Franc.
Gold tested $1337 resistance area, rising by more than 1%, posting the highest level in a year. Silver also managed to rise towards $17.90.
Japanese Yen added more than 0.5% until this report is released, while the Swiss Franc spiked by more than 0.75% trading around 0.9560’s.
As long as the tensions continue, these assets are likely to keep on rising, until things changes.
BRICS Countries Meets in Shadow Of North Korea Crisis
BREAKING: China says President Donald Trump’s trade threat over North Korea is “unacceptable” and “unfair.”
— The Associated Press (@AP) September 4, 2017
BRICS group countries, including Brazil, Russia, India, China, and South Africa meet in China. All they had to say about the tests was: “Unacceptable”.
This is what they can do as if they were fearing North Korea. Yet, there is a light in the end of the tunnel, as Switzerland offered good offices in North Korea crisis. The question is, will it work?
When Will The Markets Get Used To These Tensions?
Throughout the history, geopolitical tensions had its effect on global markets and global economies. However, the markets at some point did get used to these tensions and managed to recover. Sometimes equities succeeded in ignoring these events.
However, will it be able to do so now? No one knows as well, but what we are sure about is that we are living in an era, where everything is possible, but if you look at it from a different angle, the west might take the blame for whatever happens.
Why? Because this is not something new, North Korea has been conducting missile tests for decades. But the previous US administrations were clever enough to keep things calm as much as possible.
But the new administration decided to spice up the tone and started threatening North Korea, despite the fact that Trump said that he liked the North Korean president, but this was before the elections.
After the elections, everything has changed. Therefore, the US might be the first to be blamed, as they are worried about a country that is half the world away from them. If they have the capability to respond or to protect their people from any attack, then why do they need to keep the threatening tone higher? No one knows.
Until we figure this out, traders are also advised not to overreact to these threats or any new missile tests. Standing aside until things become clearer would be a better decision.
by Nour Eldeen Al-Hammoury, Orbex
Nour Eldeen Al-Hammoury has more than ten years of experience in focusing on foreign exchange and global economic developments, as well as central bank policies and intermarket analysis (global markets relationships). Nour Eldeen is a regular on many major TV networks (several times each) such as: BBC Radio, BBC World News, Al-Jazeera, Al-Hurra TV CNBC Europe, CNBC Asia, CNBC Arabia, Al Arabiya, Bloomberg, Russia Today, Dubai TV, Sama Dubai, Skynews Arabia, Qatar TV and Future TV News.