Commodities: "Nuclear" tests push gold higher as risk-off takes hold

North Korea was back in the headlines on Monday as Pyongyang claimed it had tested a hydrogen bomb which it could fit on a long-range missile, and South Korea said it had observed indications that preparations for missile launches were afoot.

That reportedly led South Korea to broach with the United States the possibility ofdeploying aircraft carriers and strategic bombers to the Korean peninsula.

In typical risk-off fashion, safehaven buying pushed gold 0.65% higher to $1,333/oz. and the December contract up to $1,339/oz..

Spot gold reached it's highest level since November 2016 in the early hours of UK trading, to hit $1,340/oz..

Tom Kendall at ICBC Standard Bank said, "We've got the geopolitics and we've also got a fairly benign interest rate environment. There's still nothing threatening coming out of the Fed," also stating that a weaker dollar had helped underpin gold moves of late.

Gold is highly sensitive to rising interest rates because they increase the opportunity cost of holding non-yielding bullion while boosting the dollar, in which gold is priced.

In other precious metals, spot silver was up 0.91% to $17.90/oz., platinum was 0.04% lower to $1,008/oz. and palladium was also lower at $975/oz.

Speaking about the latest moves in palladium, which hit it's highest level since 2001, Kendall said, "The way palladium has moved and the speed at which it's moved since the beginning of August, I think it's getting to the point at which you would be very cautious of a significant correction back into the mid to low 900s over the next month or so."

In base metals, copper hit it's highest level in three years on Monday as signs of strong Chinese economic growth boosted the outlook for demand. Spot copper was up 1.2% on the day to $6,926/tonne.

Ole Hansen at Saxo Bank stated, "copper continues to enjoy the tailwind from the outlook in China," adding that recent dollar weakness has helped make the metal more attractive and pushed it further."

However, Commerzbank said in a note,"prices have become largely detached from the fundamental data [...] the potential for and possible extent of a price correction are increasing every week."

Energy markets saw December WTI (West Texas Intermediate) fall 0.28% to $48.39/barrel and brent crude for January delivery lower to $52.47 with damage to the oil infrastructure in the Gulf Coast hub by hurricane Harvey appearing less extensive than some had feared.

"The disruptions from Hurricane Harvey in the U.S. Gulf Coast are gradually clearing. In the broader scheme of things, it appears that so far the energy industry was spared major damages to assets and infrastructure," analysts at Vienna-based JBC Energy said.

Due to the US Labour Day public holiday, trading volumes were lower than usual, but despite this, downward pressure on was seen as traders moved money out of oil (high risk) and into gold futures (low risk).