Chief marketing officer, easyMarkets. Previously leading the Risk Management team responsible for offsetting market risk. Extensive background within the financial markets, specializing in derivatives

Tensions on the Korean peninsula reached a boiling point this week after US President Donald Trump warned the North it would face “fire and fury” should it continue sabre rattling the world’s biggest superpower. In response, the North Koreans threatened to target the US Pacific territory of Guam with a missile attack.

Trump Threats Escalate

“North Korea better not make any more threats to the United States,” Trump told reporters in comments aired on television and broadcast worldwide. “They will be met with fire and fury like the world has never seen.”

Although Trump’s aides knew he planned to talk tough on North Korea, they did not expect apocalyptic rhetoric from their president.[1]

Following the remarks, North Korea’s state news agency KCNA said a plan for a missile strike on Guam would be ready within days.[2]

Where it All Began

The tit-for-tat followed fresh U.S. sanctions on Pyongyang over its ballistic missile program. The United Nations Security Council also voted unanimously to implement new sanctions, which would prohibit the hermit state from exporting coal, iron, iron ore, lead ore and seafood. The restrictions could cost the North Koreans $1 billion in revenue. That’s a significant blow for the cash-starved communist state.[3] A top Chinese official has said his country is prepared to pay the price economically for greater sanctions on Pyongyang.[4]

The Markets React to Trump and North Korea Tension

The growing rift between the United States and North Korea sent global stock markets tumbling, triggering an exodus from so-called riskier assets. The stock market selloff intensified on Thursday, with the Dow Jones Industrial Average plunging 200 points. The large-cap S&P 500 Index was also down 1.5% as volatility spiked more than 40%.[5]

Investors poured capital into traditional haven assets, such as precious metals and the yen, to hedge against the potential backlash. Gold and silver prices surged to two-month highs as a result, while the yen gained briskly against the dollar.

The global financial markets will likely remain on edge next week as investors examine the possibility of war on the Korean peninsula. This will likely keep precious metals values elevated.

[1] Glen Thrush and Peter Baker (9 August 2017). “Trump’s Threat to North Korea was Improvised.” The New York Times.

[2] Australia News Limited (9 August 2017). “North Korea ‘seriously examining a plan’ to launch missile attack on Guam.”

[3] Alexia Fernandez Campbell (6 August 2017). “The new sanctions against North Korea explained in under 500 words.” VOX.

[4] James Griffiths and Serenitie Wang (8 August 2017). “China willing to ‘pay a price’ for stronger North Korea sanctions.” CNN.

[5] Sam Bourgi (10 August 2017). “S&P 500 Futures Log Biggest Drop in Nearly Three Months as Volatility Spikes.” Economic Calendar.

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