While investors are once again fixating on the upcoming March 15th Fed meeting, they should also be paying attention to a high level meeting likely taking place in Tokyo on the same day. Next Wednesday, US Secretary of State Rex Tillerson is expected to start his northern Asian tour in Japan. Following his stop in Japan, over the following days he is expected to head to South Korea and China, in that order. A key topic will be North Korea which fired at least four missiles towards Japan earlier this week. According to the Guardian, three landed within Japan's economic exclusion zone. For Japan and the United States, that may well be three missiles that went too far.
In my recent interview with Jim Goddard on Howestreet.com radio, I discuss both the Fed and the North Korean situation and how they could be opposing forces on the gold price.
The risks to gold from the Fed relate to the aggressiveness of their interest rate increases. If they start to move short-term rates up faster than inflation picks up, gold will have problems. Indeed, as we highlighted in our March Gold Top 20, our INK Gold Indicator has been falling which means that insiders have been taking money off the table ahead of the Fed meeting (Top 20 reports are available in PDF for Canadian Insider Club members).
The move down in the indicator as gold mining shares stumble signals short-term caution.
It is not all an uphill battle for bullion. Although the North Korean situation seems to get only passing attention from North American investors, geopolitical tensions in Asia should provide a tailwind. Market reaction would no doubt be quite different if Cuba had just fired three rockets into US waters off the coast of Florida.
Out of sight, out of mind.
Recent moves by North Korea are a concern for at least three reasons:
1. Missile launches have become more frequent
2. The new US Administration is not yet fully staffed to deal with an Asian crisis
3. The recent murder of Kim Jong-un's half bother Kim Jong-nam
In addition, since the radio interview, the South Korean Constitutional Court confirmed the impeachment of former President Park Geun-hye. According to Reuters, a presidential election will be held within 60 days. Consequently, North Korea's main adversary is now leaderless for two months.
In my view this opens up a potential window of opportunity for North Korea to stir the pot even further over the next few weeks. Whether or not they deem it worth the risks is, of course, the big question.
Listen to or download the full interview below. You can also catch it on Howestreet.com's .