USA gold futures for December delivery rose 0.8 percent to $1,272.00 per ounce. The drop was greater than an expected 2.37 million barrels.
European markets closed lower: London's FTSE lost 0.6 per cent, Paris fell 1.4 per cent and Frankfurt dipped 1.1 per cent. In a tense situation like this, equity markets can move lower exceptionally fast, and investors don't want to be caught on the wrong side of the markets, so they are getting out now'.
Many world stock markets have hit record or multi-year highs in recent weeks, leaving them vulnerable to a sell-off, and the tensions over North Korea have proved the trigger.
The dollar index fell 0.14 percent, with the euro unchanged at $1.1757. The Russell 2000 index of smaller-company stocks picked up 1.69 points, or 0.1 percent, to 1,374.23.
Australian shares were down 1.3 per cent, set for a weekly loss of 0.6 percent and Chinese and Hong Kong bluechips lost 1.6 per cent and 1.9 per cent, respectively.
Trump, whose threat this week to bring "fire and fury" was dismissed by North Korea, said Thursday that statement might not have been "tough enough". "I think before the end of the year the market goes to new highs and (Treasury) yields go higher".
The remarks followed a new report asserting that USA intelligence has assessed that Pyongyang has successfully produced a nuclear warhead that can fit inside its missiles.
The ongoing standoff between North Korea and America has seen gold rise to a two-month high.
The Dow fell more than 200 points, a almost 1% drop, and its biggest dip in three months.
Investors also drew some encouragement from new government data showing USA inflation at the consumer level inched higher last month.More news: Jogger arrested, accused of pushing woman in front of London bus
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Global benchmark Brent also fell 0.9 per cent to $51.44, after Thursday's 1.5 per cent drop.
Traditional safe-haven currencies including the Swiss franc and Japanese yen rose against the USA dollar. These are considered safe-haven assets.
On the currency markets, the pound fell 0.2% against the dollar to $1.2976 and slipped 0.05% against the euro at 1.1055 euros.
The dollar pulled back 0.1 percent to $0.9635 Swiss francs on Friday, after dropping as much as 1.2 percent to a two-week low overnight.
United States productivity data had little impact with some caution ahead of Friday's inflation data.
The dollar weakened after news that US producer prices unexpectedly fell in July, recording their biggest drop in almost a year and pointing to a further moderation in inflation that could delay a Federal Reserve interest rate increase.
About 7.5 billion shares changed hands on USA exchanges, well above the 6.25 billion average for the last 20 days.
The 30-year bond US30YT=RR last rose 28/32 in price to yield 2.7759 percent, from 2.818 percent late on Wednesday.
Crude futures extended losses on fears of slowing demand and lingering concerns over a global oversupply meanwhile.
Elsewhere in commodities, the September crude contract was up 39 cents to $49.56 USA per barrel, September natural gas advanced six cents at $2.88 U.S. per mmBTU and September copper declined two cents at $2.93 United States a pound.
Sydney was a rare bright spot in Asia-Pacific with stocks closing 0.4 percent up as Australia's biggest bank posted record annual profits.