Investors seek safety as N. Korea tension escalates; stocks off, gold up

Investors seek safety as N. Korea tension escalates; stocks off, gold up

US indexes were trading at session lows on Thursday afternoon, with the Dow and the Nasdaq posting triple-digit point declines, as investors fretted over escalating tensions between the United States and North Korea.

"But looking ahead, unless we start to see a conflict breakout or a major stock market correction, (gold) is capped at $1,295, (although) the upside at the moment is the favoured direction".

BONDS: Bond prices rose.

The Swiss franc was on pace for one of the largest single-day jumps against the euro since the Swiss National Bank removed its cap on the currency in January 2015.

Although Japan could be in the front line of any clash with North Korea, the yen is benefiting because Japan is the world's biggest creditor nation and Japanese investors tend to repatriate funds in times of stress, attracting other flows. Euro Stoxx 50 index was down by 1.27 percent and CAC 40 lost 1.4 percent as investors turned cautious.

"That reset is being triggered by North Korea geopolitical concern and stretched valuations", said Peter Kenny, senior market strategist at Global Markets Advisory Group, New York.

It's not the first time North Korea has threatened Guam, which is a crucial, strategic hub for US forces in the Pacific.

The latest tensions began after US President Donald Trump on Tuesday warned North Korea that it would face "fire and fury" if it threatened the United States.

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North Korea went further with its threat to the US by providing detailed plans about how it plans to launch missile strikes on the US-Pacific territory of Guam. "Every August we have some reason to run up the alarm", Kenny said.

Disappointing company earnings also helped pull the market lower, with financial and consumer-focused companies outweighing gains among health care stocks.

USA stocks felt significant early drag, with the S&P 500 down 0.5% at the open. Gold hit a two-month high of US$1,278 an ounce amid the nervousness.

North Korea immediately called Trump's rhetoric a "load of nonsense" that was aggravating a grave situation.

Worries about increased U.S. "We believe continued saber-rattling ... could take gold prices higher still", Nitesh Shah, director at ETF Securities, told Reuters. Brent crude, used to price worldwide oils, gained 56 cents to $52.70 in London.

There have been some markets which have benefited from the U.S.

"If it's going to happen it's going to happen", Loiue Joyce, a woman in her mid-20s, said of the North Korean threat, as she enjoyed a day of shopping. Lockheed Martin, Raytheon, General Dynamics and Northrop Grumman and the Dow Jones U.S. defense index was up 1.48 percent after hitting a record high.

Guam's governor on Thursday said the United States territory was "well-equipped" to handle any North Korean strike thanks to robust infrastructure that had survived earthquakes and typhoons, after Pyongyang released a detailed plan to launch missiles towards the island.

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