Gold prices inched up this last Wednesday amid fears of North Korea’s intercontinental ballistic missile (ICBM) testing. A development which spiked demand for the safe haven metal asset.
ANZ Research confirmed in a note that “Safe-haven buying re-emerged in the gold market after the latest missile test in North Korea”. Spot gold rose 0.2 percent to $1,225.84 per ounce while US gold futures for August delivery climbed 0.5 percent to $1,225.20 per ounce.
Despite this jump, analysts say the rush for gold was steadied as traders awaited the release of minutes from the US Federal Reserve’s last meeting, which was expected to add clarity to the extent of the Fed’s next rate hike.
Matters got to a head as the USA was in the midst of its Fourth of July celebrations, where sparks were also flying on the other side of the Pacific Ocean. Leading to ominous expectation that these less-then-welcome fireworks will be flying over to the American continent all too soon.
Last year when North Korea announced that it was in the final stages of developing an ICBM, Trump’s response was a deriding scoff. So it may not be coincidental that North Korea chose to test its weaponry on America’s Independence Day. Their insistence on being taken seriously appeared to work as Trump later twitted “Hard to believe that South Korea and Japan will put up with this much longer. Perhaps China will put a heavy move on North Korea and end this nonsense once and for all.”
The missile flew 930 km in 37 minutes from its launch pad, splashing down in the Sea of Japan. Following an unusual trajectory, the missile reached an altitude of 2,800km. A normal and less heightened trajectory means that the missile could have achieved a range of 6,700km. A distance that would be sufficient for it to land in Alaska, but not mainland America. So Kim Jong Un probably has a few more years ahead of him before he can brandish a weapon that is capable of delivering a nuclear explosion to the shores of California.
Although the missile traveled less than the threshold to be defined as an ICBM, the potential range does exceed the minimum of 5,500km. So technically, whilst it didn’t travel to its full extent, the North Korean government is probably justified in describing it as an ICBM. In all probability the test was carried out to not only demonstrate the potential range, but also to gain more knowledge for the engineering requirements of a warhead-carrying re-entry vehicles by flying at a higher altitude for a longer period.
Until now attempts to curtail North Korea’s missile building efforts have all fallen flat. Primarily having relied on China, a Trump Tweet has reported that “it has not worked out”. South Korea’s President Moon Jae-in emphasized the importance of keeping dialogue open with their neighbor, but this appears highly aspirational with Mr Kim’s enthusiasm for pursuing his missile programme.
The dark grey elephant in everyone’s mind is a military response. Widely regarded as a last resort, it has since become a more conspicuous option. Defense Secretary James Mattis acknowledged that war with North Korea would be nothing less than “catastrophic”, the use of military technology available could potentially entail “the worst kind of fighting in most people’s life times”.
Another response may be for the USA to threaten to blow up North Korea’s missiles whilst they are in boost or ascent phase, with the obvious consequence that if they cannot test, they cannot build. However Micharl Elleman from the International Institute for Strategic Studies anticipates that the interceptors that are needed to achieve this disruption, will not be available until America or Japan can deploy them. Yet failed tests that were completed in late June indicate that we are still too far off from deployment. In order to be of any value, these new interceptors need to be 50% faster than existing interceptors already available.
Thus a race is on, with North Korea currently in the lead with their programme of advancing missiles, leaving America and Japan behind in its dust.
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