Gold : Still The Safest Investment In Times Of Turmoil

North Korea has been in world news these days. Kim Jon Un has made a show of threatening the world and in particular the U.S by launching missiles. The acrimony between the two countries were heightened by Kim’s strong words against the U.S and threats to reduce it to ashes and darkness. There is talk of war with Russia and China making it clear that they will not stand by and watch if war break out on any of their borders.


It’s not just North Korea that has been rumbling with talks of war, but Russia and NATO are having a stand-off. Russia is notorious for playing war games by staging military exercises that were veiled invasions. They did this with Georgia in 2008 and again with the Ukraine in 2014.


The threat of war or some kind of conflict should affect the global gold markets, however, this doesn’t seem to be the case. Maybe people are just tired of all these different leader postulating but not actually doing anything. These countries have unknown nuclear powers and ignoring them wild be at our own peril. This year the price of gold has gone over 15 percent. This means that gold is still regarded as a store of wealth, a safe heaven in the face of war and strife. The parties that as involved in the latest fracas, i.e China, The U.S and Russia are the world’s biggest holders of gold. Markets should look at how the leaders of these great nations are behaving before making judgements.


As far as the Korean Peninsula is concerned Russia and China have reiterated that they will not sign off to regime change regime collapse or accelerated reunification and military deployments on the northern side of the 38fh parallel dividing the peninsula. China and Russia do not believe that there is any advantage in tightening sanctions as a way to punish North Korea. Putin and Xi Jinping would not like a situation where The U.S wages war against North Korea. Their countries are currently North Korea’s biggest economic partners. They would not like to see a war that would only serve to protect or expand the U.S’ strategic interests. China and Russia aren’t supportive of North Korea’s nuclear ambitions, but they recognise the need for anti- Western countries to work together to get more influence and power. Russia in particular is not supportive of sanctions, it has been under economic sanctions since 2014 for its annexation of Crimea and its continued military actions in eastern Ukraine. Helping Kim stand against US and UN sanctions is not only a strategic move, but a matter of principle as well. Russia’s refusal to back tougher sanctions on North Korea is a statement to the Western powers that Putin will not give in to demands regarding his own military activities in the Ukraine and Crimea.


Russia has been hosting military drills on the borders of three NATO countries known as Zapad 2017. In fact, these drills have taken place since 1999 and have grown in size. These military exercises are designed in part to show Russia’s might and demonstrate that Russia has the capability to respond with great force should it be provoked or undermined by the U.S. Russia has flexed its muscle in defence of North Korea. It has launched propaganda operations against the West and has been rumoured to have hacked (and possibly affected) the U.S and the French elections. NATO has responded to Russia by deploying multinational troops around the Baltics and Poland.


Where is China in all this military posturing? Xi Jingpin might not be conducting military drills, but his country holds an incredible amount of economic power. China’s credit-driven expansion accounts for half of the global growth since 2008. Chinese banks have over $35 trillion worth of assets; that is four times more than what their balance sheet showed in 2008. Private debt as a proportion of the annual GDP has risen from 120% to a whopping 210%! The balance sheets that China presents does not account for the massive shadow banking system and investment vehicles.


China has often said that it would not participate in any military showdown between America and North Korea. Right off the bat, the new president of the United States, Donald Trump had no good thing to say about China and has threatened the country with tariff increases. Trump’s campaign and promise of fixing America’s economy included revisiting the relationship the US has with China. He branded China as a manipulator and a facilitator of illegal piracy businesses. The market is slowly waking up to the these situations and the risks that sanctions and trade wars will bring.


Over the last year, gold has been the best performing asset. There has been a strong undercurrent of uncertainty and this has played into the price of gold. There is no crystal ball that will tell us how things will shape up and it is for this reason that investors should start diversifying their portfolios and adding precious metals like gold and silver in their investments. Geopolitical disasters can be prevented, but the cracks in the financial system have been growing. The dramas between the U.S, China, North Korea and Russia are just adding more pressure. Most countries know this and it is why so many are buying gold. Investors should not wait for things to get worse, but should be proactive and buy gold.