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Chinese Sanctions and Strategic Accountability Weigh Heavily on Gold

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Recent events have resulted in a de-escalation of the current tension between the United States and North Korea. Also lowered is the probability of North Korea aggressively continuing its nuclear testing program.

Chinese pressure has, in fact, dampened the current tension as they issued a proclamation to implement sanctions created by the United Nations.

According to Fox News, “China’s Commerce Ministry on Monday announced that all imports of coal, iron ore, lead concentrates and ore, lead and seafood from North Korea would be banned.”

In a statement issued by the Chinese Foreign Minister Wang Yi, he said, "In order to maintain the international nuclear non-proliferation system and regional peace and stability, China will, as always, enforce the full content of relevant resolutions in a comprehensive and strict manner."

Add to this the fact that top military officials from the United States arrived in South Korea on Monday to present a single united position on the rogue country. "We are replacing the failed policy of 'strategic patience'... with a new policy of strategic accountability."

The United Nations sanctions, along with recent policy statements by the United States, have been issued at a time when North Korea plans to launch four missiles into the ocean near Guam.

North Korea condemned the sanctions in the “strongest terms,” stating that the UN resolution is a "wanton infringement upon the sovereignty of the country."

Given these recent events, there is certainly a pause in the mounting tension and back-and-forth rhetoric that was so prevalent last week. However, it is this author’s belief that this crisis is far from over.

Inasmuch as there is a current lull in this complex crisis, there is still the possibility that the North Koreans will disregard the current sanctions and move forward with their missile test later this month. More so the United States in conjunction with South Korea will be holding its yearly exercises called the Ulchi-Freedom Guardian, which are scheduled to run from August 21-31.

Recent events resulting in the current the escalation of tensions have weighed heavily on gold. As of 330 EDT, gold futures are currently trading down $12.80, a net loss of a full percentage point at $1277.70. If this crisis continues to de-escalate in real and meaningful ways, we can look for the premium, which was recently added as a safe haven play, to continue to lessen.

However, as Jim Wyckoff of Kitco News expressed today, “Don’t expect the U.S.-North Korea confrontation to just fade away. It’s likely this situation will flare up again, and likely sooner rather than later. And don’t be surprised if this present dip in gold prices becomes a bargain buying opportunity for many traders and investors.”

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer