PRECIOUS: Gold Approaches 2-Week High Due to Safe-Haven Buying, Reports Reuters

North and South Korea Exchange Artillery Fire; Gold Gains Amid Global Tensions

On Tuesday, gold prices approached two-week highs, spurred by an artillery clash between North and South Korea and the ongoing debt crisis in Europe, leading to increased safe-haven buying and a diminished correlation with the U.S. dollar.

The U.S. dollar appreciated over 1 percent against a basket of major currencies, benefiting from a decline in the euro. Gold rose by as much as 1 percent earlier in the day, reaching a session high of $1,379.95, before settling with a 0.7 percent gain at $1,375.00. U.S. gold futures also climbed approximately 1 percent to $1,372.7.

For the first time since last Thursday, gold’s negative correlation with the dollar weakened. This situation resembled events from May when Greece sought financial assistance, causing a significant shift in investor behavior as they moved away from euros.

Analyst Nic Brown from Natixis remarked that while geopolitical events, like those in Korea and the European Union, might influence gold prices, they were likely overshadowed by broader issues related to the U.S. dollar and global inflation measures. He noted that current market dynamics seemed more tied to developments in the U.S., including quantitative easing, the dollar’s strength, and rising inflation in some developing nations.

The tensions on the Korean peninsula, coupled with concerns in Europe, triggered a flight to safer assets, evident in rising government bond prices and increased demand for the Swiss franc—another safe haven—against the euro.

Korean Tensions and European Concerns

On Tuesday, North Korea fired numerous artillery shells at a South Korean island, resulting in the deaths of two soldiers, marking a significant escalation in hostilities between the two nations.

In Europe, the euro faced downward pressure due to concerns that Ireland’s debt crisis might infect other economically vulnerable eurozone members like Portugal and Spain. Reports also indicated that the Irish government might struggle to pass an essential austerity budget.

Chancellor Angela Merkel of Germany commented on Ireland’s crisis, describing it as distinct yet equally troubling compared to Greece’s situation, stating that the euro’s condition was "exceptionally serious."

Gold priced in euros climbed over 2 percent to 1,025.89 euros per ounce, having surpassed the 1,000-euro threshold for the first time in a week. Traders in London noted robust buying of gold futures associated with the upcoming expiry of COMEX December options, which affected market dynamics around the $1,370 level.

Until this week, gold had struggled to gain amidst the dollar’s strength, particularly following positive manufacturing and employment data from the U.S. in the previous week.

Speculators in New York reduced their gold futures exposure by 4 million ounces over the last month, while holdings in the SPDR Gold Trust, the largest bullion-backed exchange-traded fund, decreased by 1.5 percent.

With Thanksgiving approaching in the U.S., investors are keeping a close watch for forthcoming economic data and the release of minutes from the Federal Reserve’s November 2-3 meeting, during which a substantial bond purchase program was initiated.

In the precious metals market, spot silver fell by 1.5 percent to $27.45 an ounce, amid overall pressure on the sector, even as holdings in the iShares Silver Trust hit a record high. Additionally, platinum decreased by 1 percent to $1,643.74 per ounce, while palladium dropped by 2 percent to $677.22.