Published: Fri, August 11, 2017
Money | By Oscar Reynolds

North Korea tensions drag down stocks but boost gold

North Korea tensions drag down stocks but boost gold

Even so, the close was the highest in a month.

North Korea claimed "only absolute force" can work on someone as "bereft of reason" as Trump and detailed plans to fire a salvo of missiles into waters around the U.S. Pacific territory of Guam.

Overall risk conditions remained fragile, although there was no further aggressive rhetoric from US President Trump.

But while most traders appeared to favour safe-haven assets, bargain seekers helped Wall Street's three major indexes pare the day's earlier losses. "We have no choice but to acknowledge the risks, and to report that financial markets are reacting to them". That "looks high enough to be consistent with a 5 per cent-plus pace for real GDP growth", Jim O'Sullivan of High Frequency Economics said in a report. The Dow is down 98.98 points or 0.5% at 21,949.72, the Nasdaq is down 65.83 points or 1% at 6,286.50 and the S&P 500 is down 16.77 points or 0.7% at 2,457.25. The euro was last trading at $1.1733 and was also down on the day against the yen and the pound at 128.61 yen and 0.9023 pounds.

In Asia, South Korea's benchmark Kospi index fell 1.1%, and the Nikkei in Tokyo sank 1.3%.

Traditional safe-haven currencies including the Swiss franc and Japanese yen rose against the United States dollar. "Tensions will continue to mount and could eventually develop into a "black swan" event that the markets are not prudently considering", Steve Hanke, professor of Applied Economics at the Johns Hopkins University, told the Reuters Global Markets Forum on Wednesday. "Tensions are still high and not going away at the moment".

The kiwi came under pressure after the Reserve Bank of New Zealand (RBNZ) Governor Graeme Wheeler said he would like to see the New Zealand dollar fall and noted the central bank had the capability to intervene.

U.S. gold futures for December delivery rose 0.2 per cent to $1,281.90 per ounce on Thursday.

Randgold Resources Ltd. and Barrick Gold Corp. were among the best performers, each gaining more than 2 per cent.

The dollar hit a new eight-week low against the yen after the data, dropping to as low as 109.32 yen. Japan is the world's biggest creditor country and there is an assumption that investors there will repatriate funds in a crisis. USD/JPY traded steady at 110.06 by 1700 BST, down 0.23% on the day. Those shares tracked a climb of more than 1% in gold prices, to almost $1,280 an ounce.

"If tensions between the USA and North Korea escalate further, we think that the implications for equities in South Korea and elsewhere will remain limited provided that war does not actually break out", wrote Oliver Jones, assistant economist at Capital Economics.

BONDS: Bond prices rose.

In commodities, USA crude fell 0.67% to $49.23 per barrel and Brent was last at $52.58, down 0.23% on the day.

Gold miners Randgold Resources and Fresnillo were among the only gainers on the FTSE, up 2.8 to 4.9 per cent as investors rushed to the safety of gold. Copper lost 0.39 per cent to US$6,455.00 a tonne.

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