Summary:

• Korean regime tests hydrogen bomb, causes a major earthquake 
• Gold prices soar to the highest level this year, eye $1377 resistance
• Trump weighs options, US markets are closed today

Gold prices soared early during the Asian session to reach $1337/oz as markets were once again surprised by a bold step made by the North Korean regime. A test of hydrogen bomb has been hailed as successful and clearly complicate a picture for the US administration. Other than gold, market reaction has been somewhat subdued in a sign that investors became used to Korean threat. But is this really the case?

This time the Korean tests looked like a serious test. It took place hours after Kim Jong Un presented a hydrogen bomb and declared that North Korea was able to carry it on intercontinental missiles. The explosion triggered a initial magnitude 6.3 earthquake according to the US Geological Survey. After conducting the test the regime said that “credibility of the operation of the nuclear warhead is fully guaranteed”.

Markets had to digest not only a fresh risk factor but also unclear response. from the US White House. While president Trump said that all options including military were on the table, he still preferred a peaceful solution. On the other hand he criticized South Korean approach to the problem causing an uneasiness under present circumstances. 

Turning to market reaction we have seen yen advancing although it was a moderate 0.65% against the greenback and European bourses opening nearly 1% lower on Monday although bourses in Asia saw only moderate 0.3-0.7% losses. 

Gold prices are not far off the multiyear highs at $1377/oz. Source: xStation5 

When it comes to gold, a spike higher after the weekend fits a longer term trend very well. After braking an upper limit in a mid-term consolidation gold prices surged higher towards a long term resistance at $1377. This is a crucial level, the highest point in a consolidation after a gold rally ended and prices were brought down to a low of $1050 at the end of 2015. 

Gold and TNOTE have diverged in their response to North Korea. A convergence could create trading opportunities. Source: xStation5 

Then again we can see that futures for the US 10 year Treasury bonds (TNOTE on xStation platform) reacted much more calmly and we can see a divergence with gold prices which could create short term trading opportunities.