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N. Korea sets ‘flight to safety’ trades in motion

The blueprint for how Wall Street reacts to threats of war, military provocations and other high-profile and unsettling geopolitical risks was on display briefly Tuesday after North Korea lobbed a missile over Japan.

The knee-jerk reaction of traders was to take “risk” off the table by selling investments such as stocks that could potentially go down a lot if the threat turns from bluster to something worse. The Dow took an early dive Tuesday, dipping almost 135 points, before recouping its gains and finishing the day up 57 points.

The market’s initial phase Tuesday was classic “flight to safety” trading. With questions swirling over North Korea’s latest missile test provocation — which put both the U.S. and one of its allies on notice — investors initially flocked to so-called haven investments, such as gold, U.S. government bonds and other assets deemed safe places to park cash when the world is experiencing existential worries.

Gold jumped more than $22 to climb as high as $1,331.90, nearing its 52-week high of $1,370.80 from September 2016. Gold settled at $1,313.10, continuing its rise above $1,300 for the first time since June 2016.

Money also flooded into U.S. 10-year Treasuries, briefly pushing the yield down to 2.088%, its lowest level since the days after the presidential election.

Calm returned and many of the trades reversed by day’s end. But not before the market showed signs of being spooked.