Gold Surges Through $1300

Originally published by Rivkin Securities

North Korea tensions have ratcheted up again as the nation fired a missile that flew over Japan and landed in the Pacific Ocean. This comes after a de-escalation in the rhetoric between the US and North Korea where it looked like diplomatic discourse may have been able to be resumed but obviously this incident will derail that plan. US stock markets nevertheless closed close to unchanged although the North Korea news may have come out after close of trading.

Gold had been struggling to get through $1,300 per ounce but it achieved this and surged to around $1,312 per ounce where it looked set to consolidate. The North Korea news, however, has provided a further boost to the precious metal which is now trading around $1,320 per ounce. This represents a decisive break of $1,300 which should now act as a support level. Aside from the political tensions, gold is also gaining support from the weak US dollar which is currently trading at an almost three-year low. The flip side of the weak US dollar is a relatively strong Australian dollar which is currently trading at US$0.792.

Hurricane Harvey continues to cripple US refining capacity and is also affecting crude production. While most of the shale producing region is not directly affected by the storm, the knock-on effects mean many producers have nowhere to send their production and must try to store it. Gasoline prices rose again overnight as the significant reduction in refining is likely to cause large drawdowns in gasoline inventories. Crude oil, on the other hand, actually fell overnight as traders fear the lower refinery throughput will weigh on crude demand. The worst may not be over as Harvey still lingers in the area and is forecast to drop significantly more rain. The stock prices of insurers with exposure in Texas were hit overnight as claims related to the storm are likely to increase costs for these firms.

The S&P/ASX 200 is set to open flat this morning based on futures pricing.

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