Gold as ‘Trump insurance’

Yesterday’s solid blue candle on the gold chart [XAUUSD] confirms my view of the precious metal as a form of “Trump insurance”. After Trump and North Korea exchanged threats suggesting nuclear retaliation, gold gained 1.32%, breaking resistance at $1275/ounce. Follow-through above $1300 would signal a primary advance, with a target of $1400*.

Spot Gold

* Target calculation: 1300 + ( 1300 – 1200 ) = 1400

From the BBC:

US President Donald Trump says North Korea “will be met with fire and fury” if it threatens the US.

His comments came after a Washington Post report, citing US intelligence officials, said Pyongyang had produced a nuclear warhead small enough to fit inside its missiles.

This would mean the North is developing nuclear weapons capable of striking the US at a much faster rate than expected.

The UN recently approved further economic sanctions against the country.

The Security Council unanimously agreed to ban North Korean exports and limit investments, prompting fury from North Korea and a vow to make the “US pay a price”.

The heated rhetoric between the two leaders intensified after Pyongyang tested two intercontinental ballistic missiles (ICBM) in July, claiming it now had the ability to hit the US.

Mr Trump told reporters on Tuesday: “North Korea best not make any more threats to the US. They will be met with fire and fury like the world has never seen.”

Gold tests resolve

The Dollar Index is in a primary down-trend. Short-term support is unlikely to hold. The long-term target is the 2016 low between 92 and 93.

Dollar Index

Silver often acts as a lead indicator gold. Testing primary support at $15.50/15.60 per ounce, breach would warn of a primary down-trend.

Silver

I have been bullish on gold since the election of Donald Trump as president. My comment last week was:

“Let me put it this way: recovery of gold above $1250 would not be a surprise. And would test resistance at $1300….”

Gold is trending lower, breach of $1215 warning of a test of primary support at $1200.

From a fundamental viewpoint, I can find no strong argument to support a lower gold price:

So I remain bullish on the long-term outlook for gold. But a peak below zero on Twiggs Trend Index warns of weakness. Breach of primary support at $1200 would mean that all bets are off.

Spot Gold

Is the Donald long gold?

Don’t know if he is long, but Donald Trump is doing his best to drive up demand for gold.

From the FT overnight:

Donald Trump has warned that the US will take unilateral action to eliminate the nuclear threat from North Korea unless China increases pressure on the regime in Pyongyang.

In an interview with the Financial Times, the US president said he would discuss the growing threat from Kim Jong Un’s nuclear programme with Xi Jinping when he hosts the Chinese president at his Florida resort this week, in their first meeting. “China has great influence over North Korea. And China will either decide to help us with North Korea, or they won’t,” Mr Trump said in the Oval Office.

“If they do, that will be very good for China, and if they don’t, it won’t be good for anyone.”

But he made clear that he would deal with North Korea with or without China’s help. Asked if he would consider a “grand bargain” — where China pressures Pyongyang in exchange for a guarantee that the US would later remove troops from the Korean peninsula — Mr Trump said:

“Well if China is not going to solve North Korea, we will. That is all I am telling you.”

Nothing like the threat of nuclear war to drive up the price of portable assets. Not that it would do much good if you are on the receiving end.

Spot Gold broke resistance at $1250 an ounce. Follow-through above $1260 is likely and would signal an advance to $1300.

Spot Gold

Theresa May had a calmer, less belligerent approach: “….encourage China to look at this issue of North Korea and play a more significant role in terms of North Korea … I think that’s where our attention should focus.”

Ukraine crisis offers lessons in how to handle China’s ambitions

Chilling analysis by Simon Leitch of the use of force by Russia and China to achieve political objectives:

Because China and Russia are major powers with nuclear weapons, dangerous conventional forces and economic leverage, states seeking to deter them from territorial challenges lack credible threats. To address this they must learn the Cold War lessons of manipulating risk or forfeit the initiative to opponents.

This is a high-stakes game of chicken which could encourage smaller states to pursue their own nuclear deterrent and indulge in aggressive, irrational, North-Korean-style behavior in order to discourage aggression from their larger neighbors.

Read more at Ukraine crisis offers lessons in how to handle China's ambitions.

China Shouldn’t Let the Korean Crisis Go to Waste | RealClearWorld

Alex Berezow posts:

Why is China maintaining allegiance to the North? As Andrei Lankov explains in the New York Times, there are two main reasons: (1) Regime change could result in chaos, meaning thousands or millions of refugees swarming into China, not to mention the possibility of the North’s weapons getting into the wrong hands; and (2) A unified Korea would be a U.S. ally. China doesn’t like either of those outcomes, so it prefers to maintain the status quo. Lankov concludes:

China faces a choice between two evils: a nuclear North Korea or a collapsing North Korea. And a collapsing North Korea clearly represents a greater evil.

Read more at China Shouldn't Let the Korean Crisis Go to Waste, RealClearWorld – The Compass Blog.

North Korea tests the limits of a MAD world | Business Spectator

Gideon Rachman points out in Financial Times that the doctrine of mutually assured destruction (MAD), employed by the West in nuclear confrontations, assumes a rational adversary:

In many respects, North Korea has replicated some of the very worst features of Maoist China: the isolation from the outside world, the labour camps, the cult of personality and the willingness to tolerate mass starvation at home. The latter is particularly chilling, when one remembers that nuclear deterrence is meant to rely on an unwillingness to accept the death of millions of your compatriots.

Read more at North Korea tests the limits of a MAD world | Business Spectator.

Time for U.S. to Disengage from North Korea Crisis | Cato Institute

Doug Bandow suggests:

Washington should begin contemplating, within earshot of Beijing, getting out of the way of its allies if the North continues to develop nuclear weapons. The message to China should be: if your client state continues its present course, you may face a nuclear-armed Japan. If that happens, blame your buddies in Pyongyang.

Read more at Time for U.S. to Disengage from North Korea Crisis | Doug Bandow | Cato Institute.

Nana Rolland: North Korean Pawn in a Chinese Chess Game – WSJ.com

NANA ROLLAND at WSJ writes:

While it steps up its own provocative actions, including recurrent intrusions into Japanese waters and airspace around the disputed islands, China exhorts the U.S. to restrain its “troublemaking” Japanese friends. The implied linkage is clear: As Beijing tries to forestall North Korean brinksmanship, it expects Washington to do the same.

We have seen this gambit before. In 2003, when Beijing feared that Taiwanese president Chen Shui-bian might be inching toward independence, it called on Washington to bring him to heel. In return, it agreed to host multiparty negotiations to persuade Pyongyang to abandon its nuclear-weapons programs.

Beijing got the better end of that deal…..

Read more at Nana Rolland: North Korean Pawn in a Chinese Chess Game – WSJ.com.

Authoritarian Rulers Get Subtler: Putin, Chavez, China’s Chiefs – WSJ.com

WILLIAM J. DOBSON: A handful of retrograde, old-school dictatorships have managed to limp into the 21st century. They are the North Koreas, Turkmenistans and Equatorial Guineas of the world. But they represent dictatorship’s past….

Today’s smarter dictators, by contrast, understand that in a globalized world, the more brutal forms of intimidation—mass arrests, firing squads, violent crackdowns—are best replaced with more subtle forms of coercion.

Rather than arrest members of human-rights groups, Russia’s Vladimir Putin deploys tax collectors or health inspectors to shut down dissident groups. In Venezuela, Hugo Chávez ensures that laws are written broadly and then uses them like a scalpel to target groups that he deems a threat….

via Authoritarian Rulers Get Subtler: Putin, Chavez, China's Chiefs – WSJ.com.

Playing Pyongyang’s Games – WSJ.com

MICHAEL AUSLIN: It took barely two weeks for North Korea to play its old game of bait and switch, this time gutting the Feb. 29 “Leap Day Agreement” with the Obama administration that promised a moratorium on nuclear and missile testing. In an Ides of March announcement, Pyongyang revealed it would conduct a “satellite launch” on April 15, which coincides with the 100th anniversary of the birth of Kim Il Sung, founder of the North Korean regime.

….In a sense, the Obama administration has only itself to blame for this mess. For three years, it wisely avoided playing Pyongyang’s games. Unlike the Bush administration, which became increasingly desperate to patch holes in a flawed policy of making ever more concessions for little in return, the Obama team kept contact with former leader Kim Jong Il at a minimum, and refused to enter the Alice in Wonderland world of reaching agreement with the North only to face provocation and demands for more concessions.

via Michael Auslin: Playing Pyongyang's Games – WSJ.com.