Donald Trump’s threat to North Korea sparks safe-haven rush

Donald Trump’s “fire and fury” threat to North Korea sent investors running for cover today amid fears that the US’s blazing diplomatic row with the rogue state could boil over into war.

Pyongyang’s promise of a “thousandfold” retaliation for new UN sanctions against the secretive dictatorship, imposed in response to its recent missile tests, drew the most bellicose comments from a US President in decades.

Trump warned that North Korea’s threats would be “met with fire and the fury like the world has never seen”.

His comments merely inflamed the situation, however, after the communist state responded that it was considering a missile strike on the US Pacific territory of Guam.

The escalating tensions shook Asian markets as the Kospi stock market index in South Korea, whose capital Seoul is in range of North Korean artillery, sank 1.1%, while Japan’s Nikkei 225 Average dropped 1.3%.

The tremors also filtered into European trading, with the FTSE 100 down 0.7% and the CAC 40 sliding 1.3% in France, where nerves were heightened by an apparent terror attack on six soldiers in the capital.

Investors instead favoured the traditional safe haven of gold, which rose $11.75 to $1268, and safe-haven currencies like the yen and the Swiss franc.

Among the few blue-chips gaining ground in London, gold miners Randgold Resources and Fresnillo put on 2% on the rise in price for the precious metal as investors favoured defensive players like Vodafone and tobacco stocks.

Yields on government bonds, which move in the opposite direction to prices, also slid as buyers snapped up safe-haven UK gilts, US Treasuries and German bunds. Wall Street’s “fear gauge”, the VIX index, meanwhile, hit its highest level for a month.

Neil Mellor, currency analyst with BNY Mellon, said: “The financial markets have generally got used to North Korean sabre-rattling and generally they don’t take much notice. But the fact that the Kospi is down shows that the market is taking this seriously.”

Despite the tensions, global markets have been awash with liquidity after quantitative-easing efforts by central banks, acting as an “anaesthetic”, Mellor added.