Gold prices climbed to a one-year high on Tuesday as the U.S. dollar eased and safe-haven buying demand remained robust due to continued concerns over North Korea's nuclear tests.
Wall Street stocks fell as U.S. trading reopened for the first time since North Korea's biggest nuclear bomb test yet, and the U.S. dollar and Treasury yields fell.
The U.S dollar was also driven lower by a Federal Reserve official's comments about low U.S. inflation, hit a one-week low against the Japanese yen and was on track for its biggest decline in eight days against a basket of currencies.
Spot gold was up 0.6 percent at $1,341.86 an ounce by 3:19 p.m. New York time, after peaking at $1,344.21, its highest since Sept. 8, 2016. U.S. gold futures ended the session up 1 percent at $1,344.50.
South Korea said an agreement with the United States to scrap a weight limit on its warheads would help it to respond to the threat from North Korea after Pyongyang conducted its sixth and largest nuclear test two days ago.
North Korea has been observed moving what appeared to be an intercontinental ballistic missile (ICBM) towards its west coast, South Korea's Asia Business Daily reported.
"Gold is still in demand as a safe haven," Commerzbank said in a note. "It is thought that the missile may be fired before the country celebrates its Foundation of the State Day on 9 September. This further raises geopolitical tensions in the region."
Much of gold's recent strength can be attributed to the flight to assets perceived as being at less risk from geopolitical uncertainty that has been stoked up by events in the Korean peninsula.
However, Goldman Sachs said events in Washington over the past two months play a far larger role in the recent gold rally followed by a weaker dollar.
"In coming months, the unfortunate aftermath of Hurricane Harvey suggests that Washington is going to have to overcome their differences, pass spending bills, try harder to avoid a government shutdown and pursue infrastructure projects sooner than later." the analysts said. "Our economists believe the probability of a government shutdown has declined further from their prior assessment of 35 percent and now put it at around 15 percent."
Lawmakers returning to Washington after a month-long break are expected to swiftly agree to an initial request for nearly $8 billion in disaster aid after Harvey, with the House of Representatives considering assistance on Wednesday.
Goldman said it maintains its end-of-year gold price forecast of $1,250 per ounce barring a substantial escalation in North Korea.
Holdings in the world's largest gold-backed exchange-traded fund, SPDR Gold Shares GLD, rose on Friday to help underpin prices.
Among other precious metals, silver was little changed at $17.89 an ounce, while platinum inched up 0.1 percent to $1,007.90. Palladium fell 1.4 percent to $963.23 after reaching its highest since February 2001 at $1,001 in the previous session.
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