North Korea tensions send dollar to eight-week low vs yen

Daily December Comex Gold

Johannesburg/London - Gold prices climbed to two-month highs on Friday as investors sought refuge from escalating tensions between North Korea and the United States, while bullion also received support from weak U.S. inflation data.

The MSCI World index slipped 0.15 percent, extending Thursday's 1.1 percent drop, its biggest one-day slide since May 17.

Japanese markets were closed for a holiday but the yen powered on, hitting an eight-week high of 108.91 yen to the dollar, adding to its biggest weekly gain since May.

The Chinese volatility gauge jumped by the most since January 2016 to its highest level in more than seven months.

Traders across the globe reacted with dismay to Trump's warning Thursday that his earlier threat to unleash "fire and fury" on the reclusive nuclear-armed state may not have been "tough enough".

"We're not very oversold yet so the market still has more downside left to it".

"We do just not know what happens next with the North Korea situation", said BNY Mellon FX strategist Neil Mellor. The index closed at its highest level since November 8, when Trump was elected president.

South Korea's KOSPI fell 1.8 percent to an 11-1/2-week low, but its losses for the week are a relatively modest 3.2 percent.

The dollar index fell 0.32 percent, with the euro up 0.42 percent to $1.1819.

The dollar was down 0.77 percent against the yen at 109.21 yen.

"The yen is the big story really".

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Ten-year USA yields dropped 4.3 basis points to 2.24 percent and German equivalents fell 3 bps to 0.43 percent, a six-week low. Investors instead turned to safe-haven assets such as gold, pushing it to a two-month high, and the Japanese yen JPY= rose.

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Manuel Oliveri of Credit Agricole said about the single currency,"The euro has become more correlated to risk in recent weeks and sentiment is still a bit cautious", adding "though the euro upside trend is likely to remain intact over the longer term".

Away from the geopolitical drama, USA inflation data is due at 1330 GMT.

Concerns over the slowdown in inflation is expected to be reflected in the minutes to the Federal Reserve's July meeting due next week, as investors await further clues on future monetary policy.

Weakness in US Treasury yields may also be supporting the yen, Sweeting said.

Reuters data show a 22 percent perceived chance for a rate hike after the Fed's December meeting.

Ongoing global glut concerns lingered in oil markets despite a bigger-than-expected draw in US crude inventories, leaving prices volatile.

"What has changed this time is that the scary threats and war of words between the US and North Korea have intensified to the point that markets can't ignore it", said Shane Oliver, head of investment strategy at AMP Capital in Sydney.

Spot gold prices were little changed at $1,286.05 an ounce, after touching a two-month high earlier.

Japanese markets were closed for a holiday but the tense mood dragged Asian shares lower and an MSCI index of stocks across the globe was on track to post its largest weekly drop since the week before Donald Trump won the USA presidential election in November.

"Gold and silver are higher, thanks mainly to their status as safe-haven commodities".

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