Gold rallied Tuesday, as nervousness over North Korea’s weekend nuclear display, weakness in the dollar and broad losses in U.S. equities combined to push futures to the highest close in nearly a year.
Gold for December delivery rose $14.10, or 1.1%, to settle at $1,344.50 an ounce, the highest close since Sept. 22, according to FactSet data. The SPDR Gold Shares exchange-traded fund was up 1%. The metal saw electronic trading Monday, but there was no settlement for prices on Comex because of the Labor Day holiday.
The strong gain for what’s considered a haven investment came after North Korea on Sunday conducted a sixth and significantly larger hydrogen bomb test than seen before, hailing it as a “perfect success.”
That test followed Kim Jong Un, the isolated nation’s leader, showing off what he described as a hydrogen bomb capable of being mounted on an intercontinental ballistic missile. The move is seen as stepping up pressure on U.S. President Donald Trump and further destabilizing the region. U.S. Defense Secretary Jim Mattis warned Pyongyang on Sunday that any attacks on the U.S., Japan or South Korea “will be met with a massive military response, a response both effective and overwhelming.”
The isolated regime is said to be ready to launch a new intercontinental ballistic missile as soon as this Saturday when the country celebrates its founding day.
The North Korean situation “further raises geopolitical tensions in the region,” said Carsten Fritsch and the commodities team with Commerzbank, in a note. “Gold could also fluctuate in response to U.S. domestic politics over the next few weeks, as Congress will be ending its summer recess” on Tuesday.
“A new spending deal has to be decided by the end of the month in order to avoid the closure of government institutions. The debt ceiling will also have to be raised to avert U.S. insolvency. In addition, the aim is to draw up the tax reform by the end of the year,” Fritsch said. “If there are signs of agreement being reached on any of these points in the near future, this could weigh on the gold price” as the U.S. dollar would be likely to strengthen.