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Tensions over North Korea weigh on stocks but boost gold

12 August 2017

The major index futures are now pointing to a modestly higher open for the markets, with the Dow futures up by 21 points.

"Looking historically, there's relatively little volatility when it comes to stock market and North Korean provocations", said Kent Boydston, a research analyst at the Peterson Institute for International Economics.

Even as stocks headed into their third day of losses, market observers were, if not sanguine, at least unalarmed by the threats lobbed by President Donald Trump and North Korean officials.

Trump's threats have escalated since reports broke at the beginning of the week that North Korea had successfully produced a nuclear warhead that could be fitted inside its missiles. "That did temporarily shake investors' complacency, but we think markets are ready to move higher in the back half of the year, and earnings and economic data are going to drive that". The tone of Trump's warning this time around has shaken investors.

ASIA'S DAY: The earlier Asian session was heavily influenced by the sabre-rattling between the USA and North Korea. Washington delivered the ultimatum after North Korea's threat of a pre-emptive military strike on the US island territory of Guam in the western Pacific.

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On Thursday, the CBOE Volatility Index, a barometer of expected near-term stock market volatility, closed at its highest since the US presidential election.

Head of commodity strategy at Saxo Bank, Ole Hansen, told Reuters he sees further rises for gold, albeit under a ceiling: "The market hates uncertainty and that's certainly what we have now".

Data showed USA producer prices unexpectedly fell in July, recording their biggest drop in almost a year, while another set showed the number of Americans filing for unemployment benefits unexpectedly rose last week.

Excluding food and energy prices, core consumer prices still crept up by 0.1 percent in July, matching the increases seen in the three previous months.

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Offsetting the declines was a 0.4 percent gain by the materials group, which includes gold producers.

Neil Mellor, a currency strategist with Bank of New York Mellon in London, said the pound was "drifting towards the lows from last month against the dollar". The S&P was down 15.9 percent after 20 days, and 12.3 percent lower after 250 days.

Stocks are holding near their worst levels of the session with traders still on edge and very wary heading into the weekend break due to the tense geopolitical situation in the Northern Pacific.

The Dow Jones Industrial Average fell 0.9 percent to end at 21,844.01, the only close below 22,000 since breaking through that level for the first time August 2.

European markets were also struggling amid the simmering political stand-off, with the Cac 40 in France dropping 1.4% and Germany's Dax tumbling by 1.1%.

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Trading was thinner than usual, with Japanese markets closed for a public holiday. The FTSE 100 index of leading British shares was 0.7 percent lower at 7,489.