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Muted market reaction to Pyongyang’s missile plans, but experts predict flight to gold

 Michelle Teo
Michelle Teo8/14/2017 08:00 AM GMT+08  • 7 min read
Muted market reaction to Pyongyang’s missile plans, but experts predict flight to gold
(Aug 14): Pyongyang has announced, through its state media on Aug 10, that it is working on a plan to fire four missiles into the sea off Guam, and that the plan would be ready to be presented to North Korean leader Kim Jong Un by mid-August. This latest
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(Aug 14): Pyongyang has announced, through its state media on Aug 10, that it is working on a plan to fire four missiles into the sea off Guam, and that the plan would be ready to be presented to North Korean leader Kim Jong Un by mid-August. This latest pronouncement comes as a war of words between North Korea and the US escalates, with the despotic nation threatening strikes against the US territory, and US President Donald Trump promising “fire and fury” in return. North Korea has been, in recent times, accelerating its missile tests, launching 18 missiles in 12 tests so far this year. It is also said to have successfully miniaturised its nuclear warheads to fit on missiles. Its latest launches appear to have the range to hit the US mainland, according to experts.

The global financial markets’ response to rising geopolitical tensions has largely been muted. Japanese and US stocks, as well as US Treasury yields and the greenback, took a hit early in the week. But equities later regained some of their losses. The price of gold, traditionally a favoured safe-haven asset in times of turmoil, has risen less than 2% since the beginning of the week.

But some market players are expecting more buying of gold if political tensions worsen. “In the event that war should break out, and that leads to an acceptance of further loose monetary and fiscal policy in the US, we would expect a falling US dollar real yield environment, giving renewed, and sustainable, impetus to monetary metals prices,” says Ned Naylor- Leland, a fund manager at Old Mutual Global Investors. “Current institutional allocations are at their lowest, relative to historic levels. Should the North Korea situation develop, it may just prove to be the catalyst to push the institutional world to commit flows back to this asset class on a sustained basis.”

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