Stocks dip, gold rises on North Korea tensions

Last Updated Aug 9, 2017 12:25 PM EDT

LONDON — Worries over a potential confrontation between the United States and North Korea weighed on global stock markets Wednesday but helped boost the price of assets, such as gold and the Swiss franc, that are considered "safe havens" in times of geopolitical peril.

All three major indices dipped on Wednesday but had nearly regained their losses by market close. The S&P 500 closed down less than a point, at 2,474. The Nasdaq was off 18 points, 0.3 percent, to 6,352, after hitting a low of 6,309. The Dow Jones Industrial Average was down 37 points, or 0.17 percent, to close at 22,048. Markets have slumped in the last two trading sessions after 10 consecutive gains.

In another sign that investors are jittery, the CBOE Volatility Index -- also known as Wall Street's "fear gauge" -- jumped 15 percent to approach a two-month high. 

In Europe, France's CAC 40 fell 1.6 percent to 5,135 while Germany's DAX was down 1.3 percent at 12,133. The FTSE 100 index of leading British shares was 0.7 percent lower at 7,489. 

With President Donald Trump warning North Korea of "fire and fury," investors have become concerned that the war of words between Washington and Pyongyang could spiral out of control. Pyongyang said it was examining plans for attacking Guam, a U.S. territory in the Pacific with a military base. The comments follow reports that the North has developed technology to strike the United States with a nuclear missile.

The most traditional safe havens at times of mounting geopolitical unrest are the Swiss franc and gold, and both were big movers on Wednesday. The dollar was down 1.2 percent at 0.9627 Swiss francs, while an ounce of gold was 1 percent higher at $1,275.

Secretary of State Rex Tillerson assured the public Wednesday morning that there was "no imminent threat" and that Americans "should sleep well at night." 

"I think what the President was doing was sending a strong message to North Korea," Tillerson said. Nonetheless, most Americans (72 percent) are uneasy about the possibility of conflict with North Korea, according to a CBS News poll, and 61 percent say they are uneasy about the president's approach to the situation. Were the situation to escalate, much more than the stock markets would be at risk. 

"[I]t does appear to this economist that there is an acute shortage of cool heads at the top of the pyramids in both the United States and North Korea right now," Carl Weinberg of High Frequency Economics wrote in a note. "We have no choice but to acknowledge the risks, and to report that financial markets are reacting to them."

As well as monitoring the geopolitical backdrop, investors are looking ahead to an appearance Thursday by Bill Dudley, president of the U.S. Federal Reserve Bank of New York, for signs of the Fed's outlook on the economy. They are looking for confirmation that the Fed is sticking with plans to hike interest rates once more this year. Most observers believe the next hike will come in December. 

The euro was down 0.1 percent at $1.175 while the dollar fell 0.6 percent to 109.68 yen. The Japanese currency, the yen, is often a safe have asset too.