Gold and Silver Glitter

World equity and fixed interest markets appear calm and comfortable as seen by the modest 1-2% increases in the main American equity indices this year.

Good news is still evident. For instance, the US Atlanta Fed Survey is suggesting a high 5.4% rate of growth (much higher than the previous 2.7% forecast just three weeks ago) for the US economy in the fourth quarter of last year. Higher consumer spending and exports have proved the key reasons for the sharp increase.

However, if you look under the bonnet of the market and the perceived good news, it begins to show a slightly different story. Why is the precious metals sector awash with investor interest? Take our long-favoured gold and silver metals – their prices are up 17% and 52% respectively since the start of the year.

Moves of this nature are a sure signal that investors are hedging their bets and are seeking out ‘safe haven’ opportunities. It is related to the instability of economic, political and currency issues that prevail. These have stoked the remarkable policies of President Trump during his first year in office. Looking after American interests before anyone else is profoundly changing the world order and what we have become accustomed since the end of the second world war.

The latest threat of Donald Trump is to impose a 100% trade tariff on Canada should it sign a trade agreement with China. This looks a ‘knee jerk’ reaction to the Canadian Prime Minister, Mark Carney’s presentation at the World Economic Forum in Davos. He gained respect and credibility from the international community in his thought-provoking words, leaving Donald Trump’s own long, rambling and domestically focused address quickly forgotten.

Volatility in key currencies is also evident. The US dollar is now at its lowest level on a trade weighted basis since September last year. The Japanese Yen/US dollar rate has been on a roller-coaster driven by rumours that joint Central Bank intervention between the countries may be taking place to stabilise the Yen.

The Yen currency is famous for the ‘carry trade’ (investors borrow super cheap money in Yen and invest in higher yielding investments like bonds or currencies in other countries). Importantly, Japanese savers are the largest holders of Foreign Bonds and sharp rises in Japanese interest rates could mean a rapid repatriation of capital back to Japan causing mayhem in debt and currency markets.

On top of this is the fear that Congress in the US may not reach a debt agreement by the end of the week. Democrats are considering withdrawal of support which could result in a partial government shutdown and all the uncertainties that will bring.

As we go to print the Federal Reserve are likely to leave interest rates unchanged following three consecutive cuts at their past meetings. More attention is likely to focus on what Jerome Powell, the Fed Chairman says in his press conference, just months before he is due to step down from his role.

The fourth quarter 2025 results season is now underway and around one fifth of the companies in the major S&P500 Index are due to announce this week.

Many major companies carry an extra burden now. It is not enough to talk about Artificial Intelligence capital expenditure, but they have to demonstrate there is a payback in terms of cash or profit. Given high valuations, any shortfall in expectations could see investors scampering for the exit door.

That is why key results (after hours on Wednesday night) from Tesla, Microsoft, and Meta will be subject to analyst scrutiny. Apple deliver its own update on Thursday, whilst Alphabet and Amazon are due on 4 and 2 February, respectively.

(Cover Image Source: Dash)