Last Tuesday, President Trump drew what he thought might have been an “uncrossable” red line, pledging to respond with “fire and fury” should North Korea continue to threaten the United States.
It took less than an hour for North Korea to cross that line, with its leader, Kim Jong Un, upping the ante by threatening to attack Guam, a US territory.
Now the world awaits Trump’s response, wondering if he might have unwittingly drawn a line that only he cannot cross, cornering himself as a consequence of his incendiary and perhaps impulsive rhetoric, and risking the legitimacy of America’s response to direct threats (similar to Obama’s empty promise in 2013 to meet Syrian chemical attacks with American military might). Or maybe the world will see exactly what Trump had promised--a display of sheer might that demonstrates the full extent to which America will go to defend herself.
At the time of this writing, pundits across virtually every media channel are dissecting Trump’s statements, trying to make sense of his escalatory threats in light of US Secretary of State Rex Tillerson’s attempts at assuaging America’s tremulous perception of the matter. Following Tillerson’s comments, however, US Defense Secretary James Mattis’ followed up with a stern warning to North Korea, asking the rogue nation to refrain from any action that would lead to “the end of its regime and destruction of its people,” a warning to which Pyongyang responded with even more provocation, stating its pan to fire four missiles as warning shots along Guam’s outer perimeter.
Aside from the rhetorical slinging, expressions of collective anxiety made their mark on the equities and precious metals markets. Currently, the VIX (fear index) is exhibiting never-before-seen highs.
The S&P 500 slipped 0.2% (currently down 0.3%) while COMEX gold had its biggest jump in two weeks, surging 1.3% (currently at 1.5%) and silver rising 0.85% overtaking gold’s surge, currently standing at 3.00%.
A couple of takeaways. We don’t know what the future will hold beyond the current back-and-forth saber rattling. But if rhetoric can jolt the markets the way it had in the last few days, imagine what a real escalation might do. More importantly, investors’ actions have revealed their innermost intentions and beliefs, showing once again that gold and silver constitute the only real financial safe haven in a world rife with uncertainty.