Gold powered to another record high on Monday, benefiting from its reputation as a hedge against inflation and sluggish economic growth, while oil and copper prices rose on a weaker dollar and supply concerns.
European stocks were set for a firmer start following gains in Asian shares, which were led by Australia thanks to higher resource stocks, although volumes were light with Japan out on holiday.
Many investors have been reducing their positions and cutting risk as a strong year begins to wind down and with economic indicators still showing scant evidence of a sustained recovery.
Highlighting the growing concerns evident in the market, yields on U.S. 2-year Treasuries have fallen below 0.75 percent, approaching levels seen at the height of the financial crisis in December last year.
It worries me that two-year yields are trading as they are plus (short-dated) bill rates went negative and gold is bid, bid, bid, said Robert Rennie, chief currency strategist at Westpac.
It makes me think there is a huge flight to quality going on that hasn't hit FX yet...perhaps a bit of a warning sign.
The dollar, which often rises in times of increased uncertainty and worries about global growth, gave up early gains to slide 0.5 percent against a basket of currencies <.DXY>, while the commodity-linked Australian dollar benefited from the strong gold price.
Spot gold surged to a peak above $1,165 an ounce, extending gains to about a third so far this year.
Helped by its safe-haven allure and purchases by a number of central banks, gold has shot higher since the start of November, hitting a succession of record highs and gaining more than 12 percent in the past three weeks.
The heightened sense of caution has stalled a rally in global stocks, which have traded in a broad range since mid-October.
After falling last week, MSCI's index of Asia-Pacific stocks outside of Japan <.MSCIAPJ> rose 0.7 percent, taking its gains so far this year to almost two-thirds.
Australian shares <.AXJO> rose 0.6 percent, with shares of Drillsearch Energy Ltd
Financial bookmakers expected major European indexes to open between 0.6 and 0.8 percent higher on the back of stronger commodity prices, snapping a four-session losing streak. <.EU>
Crude oil futures rose 1 percent to $78.24 a barrel, supported by heightened tensions between Iran and Western nations which raised speculation of a potential supply risk.
Iran's armed forces launched large-scale air defense war games on Sunday to show off the country's deterrence capabilities in the face of pressure from the West over its nuclear program, and a cleric in the Revolutionary Guards warned that the Islamic Republic would fire missiles at the heart of Tel Aviv if attacked.
There's always a supply risk premium that can arise from these elevated tensions in the Middle East and that is a factor pushing up oil prices this morning, said Toby Hassall, a commodities analyst at the Commonwealth Bank of Australia.
Supply concerns have also supported copper, which rose to a 13-month high last week.
Workers at Chile's Spence copper mine voted early on Monday to end a 42-day strike, defusing fears of wider output disruptions after agreeing a wage deal with owner BHP Billiton
Three-month copper on the London Metal Exchange rose $115 or 1.7 percent to $6,960 a tonne.