Korean conflict

Korean conflict

Korean conflict

After North-Korea shelled one of the South-Korean islands near the sea border the tension in the region has been rising day by day. The U.S has sent one of its aircraft carries and a nuclear submarine to the area to join South-Korean military training. This is annoying China as it is the only ally of North-Korea and the presence of the U.S military might lead to further conflicts between the countries.

All military conflicts are very gold positive as investors are likely to pull their money away from stocks and look for something tangible to invest in. Whether China wants to get involved or not, the already fragile relationship with the U.S will be on the line if more bullets start flying.

The Euro zone debt worries have been pressuring markets for the last few weeks and even the confirmation of Ireland's bail out didn't calm investors. They are afraid that this is just the beginning and the next one the list is Portugal. Even bailing out Portugal wouldn't jeopardise the Euro but the rumours about Spain are the real threat. The size of Spain's economy is so much larger than Greece, Ireland or Portugal that the EU would find it difficult to gather the funds for the bail out.

Whether any other bail outs will happen or not, the fear of them will keep pressuring Euro and pushing gold up, at least in Euro terms. Investing in gold seems to be the only solution to keep one's money safe as all reserve currencies are under a significant devaluing pressure. The Dollar might look like an alternative solution but after the $600bn stimulus package and the possibility of a conflict in the Korea region, it seems to be just the lesser of the two evils.

The latest gold reports from India are expecting the total gold imports to reach 750 tonne in 2010 which would be a new annual record. This would be a 35% increase from last year when the imports totalled 560 tonne. Analysts' have been sceptical about Indian gold exports as they have predicted that the record high prices would stop Indians from buying gold.

The Bombay Bullion Association has confirmed that investment demand for gold has remained record high despite the current price levels so the figures released in the report might well be achievable. Traditionally Indians tend not to buy gold as eagerly after the festival season in November but currently the investment demand is so strong that it will keep pushing the total demand towards 750 tonne.

There is likely to be a lot of volatility in the gold price in the coming weeks as both the Korean and Euro zone issues are pressuring markets. Once we get some kind of confirmation on how the EU is going to guarantee that the Euro will not disintegrate gold will probably stabilise in Euros. It is hard to predict what will happen in Korea but the presence of China should make the U.S think twice before starting a new war with North-Korea.

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