As nuclear rhetoric between North Korea and the United States heats up, Citibank analysts are anxiously watching commodity prices due to the importance of the North Asian market.
Global commodity markets have so far not priced in geopolitical risks even as North Korea threatened to launch ballistic missiles into waters near the American territory of Guam. President Donald Trump warned there would be “fire and fury” against the North if it continued to threaten the U.S.
The VIX, a measure of how much volatility investors expect in stocks, jumped 25.2 per cent, the biggest increase since May on Thursday. The price of gold, considered a safe haven investment, rose more that $12 to US$1,285.40 an ounce by midday against the backdrop of heightened political uncertainty.
While a physical confrontation remains unlikely, analysts at Citibank have warned in a note that the tensions centre on a crucial commodity import hub of China, Japan and South Korea and any escalation would be worrisome for global trade.
Those three countries account for more than half of global demand for three major commodities: iron ore (84 per cent), liquified natural gas (54 per cent) and coking coal (52 per cent).
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