Europe’s AI bulls pin hopes on ‘Jevons Paradox’ after DeepSeek rout

LONDON – Artificial intelligence bulls in Europe are dusting off a 160-year-old economic theory to explain why the boom in the sector’s stocks may have further to run, despite the emergence of China’s cheap AI model DeepSeek.

Tech stocks worldwide plunged on Jan. 27 after the launch of DeepSeek – apparently costing a fraction of rival AI models and requiring less sophisticated chips – raised questions over the West’s huge investments in chipmakers and data centers.

At the heart of the selloff was US advanced chipmaker and AI poster-child Nvidia, which lost 17% of its value, or close to USD 600 billion, in the largest one-day drop in market capitalization for any company on record.

Since then, tech stocks have rebounded, with European markets hitting new highs, and a 19th century economic theory is suddenly on everyone’s lips: the Jevons Paradox.

Named after English economist William Stanley Jevons, it posits that when a resource becomes more efficient to use, demand can increase – rather than decrease – as the price to use the resource drops.

“I hadn’t discussed it until Monday (last week), and then suddenly it’s everywhere,” said Helen Jewell, Chief Investment Officer at BlackRock Fundamental Equities, EMEA.

“This paradox highlights one of the uncertainties at the moment,” said Jewell, flagging that a key question for European stock-pickers is whether data centers and their suppliers will be less in demand.

“One of the big question marks from (last) Monday’s news is how much energy is going to be needed for the AI revolution?”

The selloff hit direct and indirect AI plays alike. Dutch semiconductor equipment maker ASML ASML.AS, and sector peers ASMI ASMI.AS and BE Semi BESI.AS all fell 7%-12% on Jan. 27, before recouping losses later in the week, as did Siemens Energy ENR1n.DE, which provides hardware for AI infrastructure.

“Jevons Paradox strikes again!” Microsoft chief executive Satya Nadella said in a post on X.

“As AI gets more efficient and accessible, we will see its use skyrocket, turning it into a commodity we just can’t get enough of.”

THE NEW BUZZWORD

On Friday, Tomasz Godziek, portfolio manager of the Tech Disruptors fund at J. Safra Sarasin Sustainable Asset Management, said lower AI costs could exemplify the Jevons Paradox.

“Ultimately, this could fuel a new wave of AI investment, creating fresh opportunities, particularly in software and inference technologies,” Godziek said.

Portfolio managers at Thematics Asset Management, an affiliate of Natixis IM, cited Jevons Paradox as one reason they believe demand for AI chips may remain healthy.

Mark Hawtin, head of the Liontrust global equities team, also said his investment thesis on AI was reinforced by the news on Jan. 27, flagging the paradox.

“Everyone has become an expert on Jevons Paradox,” said Aviva Investors portfolio manager Kunal Kothari, who manages a UK equity income fund with around 2 billion pounds (USD 2.5 billion) in assets.

“The falling cost of improved productivity through GenAI will likely benefit companies in the UK market generally, as they will predominantly be consumers of these technologies,” he added, pointing to data and software names like RELX, LSEG, Experian, and Sage as likely beneficiaries.

DATA CENTER NEEDS IN FOCUS

The need for data centers and the vast amounts of power required to run them has driven a lot of AI investing in Europe already, given that there aren’t any homegrown rivals to the likes of Nvidia, whose shares have rocketed by about 200% in under two years.

“There is an implicit assumption that the adoption and usage of AI would require increasingly more chips, and more data center capacity and power consumption,” said Kasper Elmgreen, CIO of fixed income and equities at Nordea Asset Management.

“What DeepSeek has done is to question what is required from that route and what can be delivered by making much better software.”

Not everyone is convinced of the new rationale, including Jordan Rochester, head of FICC strategy at Mizuho EMEA.

“Whilst many Nvidia optimists pointed to Jevons Paradox to help them sleep better at night … it was less convincing in the short term after what has been a meteoric rise in Nvidia shares,” he wrote in a note.

(USD 1 = 0.8122 pounds)

(Reporting by Lucy Raitano. Editing by Amanda Cooper and Mark Potter)

US recap: Dollar trims advance after tariffs delayed

The dollar index pared gains on Monday after Mexican President Claudia Sheinbaum and President Trump agreed to delay implementing tariffs, easing concerns about a North American trade war. Mexico pledged to reinforce its northern border with 10,000 National Guard members.

Trump later qualified these reports by saying that nobody is out on tariffs and that there will be future negotiations with Mexico. He also said that he had a good talk with Canadian Prime Minister Trudeau, that the US has not been treated well by Canada, and that he will speak to China over the next 24 hours.

In US data, January manufacturing PMI moved back into growth territory with the prices paid component higher than forecast and the employment gauge moving into expansion territory.

Boston Federal Reserve President Susan Collins said tariffs may drive up inflation, while noting there’s a lot of uncertainty and no urgency on the part of the US central bank to change the direction of monetary policy. Atlanta Fed president Raphael Bostic said uncertainty around tariffs and other policies have made it difficult for the Fed to anticipate how the economy will evolve and made a cautious approach to further rate cuts appropriate.

EUR/USD remained down about 0.8% at 1.0285 on concerns that the European Union may be the next target of tariffs. The pair sank to as low as 1.0125 earlier on Monday, its lowest EBS level since November 2022. European leaders warned that Trump’s threat to expand tariffs to the EU risked igniting a trade war that would harm consumers on both sides of the Atlantic.

GBP/USD reversed nearly all its loss after the agreement between the US and Mexico though an expected Bank of England rate cut on Thursday remains a headwind for the pair.

USD/JPY found support at 154 though lower Treasury yields and softness in tech stocks saw its recovery stall below 155. Prime Minister Shigeru Ishiba is set to have discussions with Trump later this week.

Treasury yields were mixed as the curve flattened sharply. The 2s-10s curve was down about 6 basis points to +26.7bp.

The S&P 500 fell 0.67% fueled by weakness in tech shares.

Oil was little changed after OPEC+ agreed to stick to its policy of gradually raising oil output from April.

Gold rose 0.65% due to the tariff uncertainty while copper advanced 1.09%

Heading toward the close: EUR/USD -0.81%, USD/JPY -0.18%, GBP/USD +0.06%, AUD/USD -0.55%, DXY +0.63%, EUR/JPY -1.00%, GBP/JPY -0.16%, AUD/JPY -0.73%.

(Editing by Burton Frierson; Reporting by Robert Fullem)

Gold hits record high as Trump tariffs spur safe-haven buying

Gold prices hit an all-time high on Monday, bolstered by safe-haven inflows after US President Donald Trump’s tariffs on Canada, China and Mexico added to concerns of inflation that would dent economic growth.

Spot gold rose 0.8% to USD 2,818.99 per ounce by 01:45 p.m. ET (1845 GMT), after hitting a record of USD 2,830.49 earlier in the session.

US gold futures settled 0.8% higher at USD 2,857.10.

Despite the usual dampening effect of a strong dollar on the gold market, prices have been rallying due to the safe-haven demand driven by uncertainty surrounding Trump’s tariffs, said David Meger, director of metals trading at High Ridge Futures.

The 25% tariffs imposed by Trump on Canadian and Mexican imports from Tuesday, along with a 10% charge on Chinese goods, fuelled fears of a trade war that could slow global growth and feed inflation.

Canada and Mexico ordered retaliatory measures while China said it would challenge the tariffs at the World Trade Organization and take unspecified countermeasures.

However, Trump announced a month-long pause on tariffs the US had slapped on Mexico.

The market is not fully convinced about the extent of the trade war, Bart Melek, head of commodity strategies at TD Securities, said.

“We haven’t seen a complete response from gold and if this trade war continues for a considerable period, it could lead to significantly higher gold prices down the road,” Melek added.

Gold is often considered as a safe-haven investment during periods of economic or geopolitical instability.

J.P. Morgan said bearish contagion from equities could weigh on gold in the near term, but disruptive tariffs were a medium-term bull case for bullion.

Investors await data this week on US job openings, the ADP employment report and the US employment report to gauge the health of the US economy.

Meanwhile, bullion banks are transporting gold from Asian trading hubs like Dubai and Hong Kong to the US to profit from the unusually high US gold futures premium over spot prices.

Spot silver rose by 0.8% to USD 31.56 an ounce, platinum lost 1.5% to USD 963.40 and palladium rose 0.5% at USD 1,012.85.

(Reporting by Anmol Choubey in Bengaluru; Editing by Barbara Lewis, Shailesh Kuber, and Maju Samuel)

Rebound eyed as tariff respite softens initial blow

First the stick, then the carrot.

Investors breathed a sigh of relief on Monday after some of US President Donald Trump’s sweeping tariffs announced over the weekend were put on ice, allowing stocks and non-dollar currencies to claw back losses and regain some poise.

This should help bring some degree of calm to markets in Asia on Tuesday, assuming there is no left-field announcement from Trump in the next few hours. Given the events of the few days though, that may be a risky assumption.

The steep fall across Asian markets on Monday was understandable after Trump on Saturday slapped 25% import tariffs on goods from Mexico, the same levy on non-energy imports from Canada and 10% duties on purchases from China.

US markets were then whiplashed later in the day after Trump and Mexican President Claudia Sheinbaum said the Mexican tariffs would be put on hold for a month while talks between the two countries towards a “deal” got underway.

There’s unlikely to be any official reaction from Beijing to the unilateral tariffs before Wednesday, when China reopens after the Lunar New Year holiday. China’s UN envoy Fu Cong did say on Monday, however, that China could be forced into taking countermeasures.

One option many observers say Beijing may pursue is allowing its currency to fall significantly, which would offset the tariffs. Pressure on the yuan could be pretty intense when trading reopens later this week – the offshore yuan traded in Hong Kong hit a record low against the dollar on Monday before clawing back some of these losses.

Asian stocks got beaten down pretty badly on Monday. The MSCI Asia ex-Japan index, the Nikkei 225, and other major benchmark indices posted their biggest declines in several months, but Japanese futures are pointing to a rebound of more than 1% on Tuesday.

For what it’s worth, market expectations for US interest rates this year have not budged much at all. Investors still expect two more quarter-point cuts, the first coming in July rather than June.

US Treasury yields fell on Monday, surprising some analysts who would have expected the opposite reaction due to the expected inflationary impact of tariffs. A lower dollar and US bond yields should bode well for Asia on Tuesday.

Markets in Asia could get some direction from Japan, where the corporate reporting season is underway. The list of companies releasing results on Tuesday include heavyweights Panasonic, Nintendo, Mitsui, Mitsubishi UFJ, and Sumitomo.

Here are key developments that could provide more direction to markets on Tuesday:

– US tariff fallout

– Japan corporate earnings

– Offshore Chinese stocks, yuan trading in Hong Kong

(By Jamie McGeever)

UPDATE 12-Oil mixed as Trump restores pressure on Iran, tariff drama caps prices

Trump reimposes ‘maximum pressure’ on Iran

Trump in no hurry to speak with Chinese President Xi Jinping

US tariffs on China take effect

China counters with 10% tariffs on crude, coal and LNG

Trump pauses tariffs on Mexico, Canada for a month

Updates with U.S. oil stocks data from API in final paragraphs

By Georgina McCartney

HOUSTON, Feb 4 (Reuters) – Oil prices diverged at settlement on Tuesday amid tariff drama between Washington and Beijing, and after U.S. President Donald Trump restored his “maximum pressure” campaign on Iran, in a bid to drive Iranian oil exports to zero, per a U.S. official.

Trump signed the presidential memorandum ahead of his meeting with Israeli Prime Minister Benjamin Netanyahu, ordering the U.S. Treasury secretary to impose “maximum economic pressure” on Iran, including sanctions and enforcement mechanisms.

U.S. West Texas Intermediate crude CLc1 settled down 46 cents, or 0.63%, at $72.70 a barrel.

Global benchmark Brent crude futures LCOc1 settled up 24 cents, or 0.32%, to $76.20.

Oil came under pressure early as new 10% U.S. tariffs on Chinese imports took effect on Tuesday, spurring retaliatory tariffs by Beijing. At its session low, U.S. crude was down more than 3%, the lowest since late December.

Trump had driven Iran’s oil exports to near zero during his first term after reimposing sanctions. They rose under former President Joe Biden’s tenure as Iran succeeded in evading sanctions.

Iran, the third-largest producer in the Organization of the Petroleum Exporting Countries, extracts about 3.3 million barrels of oil per day, or around 3% of global output.

“The reason why oil was down near the lower end of the trading range was the China retaliation, and it went back up because of the ‘maximum pressure’ on Iran,” said Phil Flynn, analyst at Price Futures Group.

TARIFF DRAMA

Traders had been eyeing efforts to schedule a call between Trump and Chinese President Xi Jinping, but the U.S. president said on Tuesday he was in no hurry to speak to his Chinese counterpart.

Trump said “that’s fine” when asked about China’s decision to issue retaliatory tariffs on U.S. imports.

Earlier, Trump trade adviser Peter Navarro had said the two leaders would speak, suggesting to investors there was scope for China to receive a temporary reprieve like Trump granted to Mexico and Canada on Monday.

“Oil was down on the China retaliation, I think it’s the expected Trump-Xi call that brought us back up, and we kind of know how those go now, in terms of walking this all back,” said John Kilduff, a partner at Again Capital in New York.

On Monday, Trump suspended his threat of steep tariffs on Mexico and Canada, agreeing to a 30-day pause in return for concessions on border and crime enforcement.

Ongoing trade tensions between the U.S. and China may dampen demand for oil, further pressuring prices.

“The tit-for-tat measures out from China may not stop at just the 10% tariffs on crude oil from the U.S., which can also see a deliberate attempt to weaken the yuan if the U.S. fires back with more tariffs on China exports to the U.S.,” said Kelvin Wong, senior market analyst at OANDA.

“Overall such actions are likely to give rise to a stronger U.S. dollar that in turn weakens … oil prices, given that OPEC+ members are still on track to increase oil supply gradually from April.”

China’s 2024 crude oil imports from the U.S. accounted for 1.7% of its total crude imports, customs data shows.

“The Chinese are smart targeting crude oil and liquefied natural gas, because that’s effectively going to knock them out of the U.S. market as you’re adding $5-$7 a barrel, depending on pricing and that’s just not competitive,” said Kilduff.

Meanwhile, U.S. crude oil and gasoline stocks rose last week while distillate inventories fell, market sources said, citing American Petroleum Institute figures.

Crude stocks rose by 5.03 million barrels in the week ended Jan. 31, the sources said on condition of anonymity. Gasoline inventories rose by 5.43 million barrels, and distillate stocks fell by 6.98 million barrels, they said.

(Reporting by Georgina McCartney in Houston, Katya Golubkova in Tokyo and Trixie Yap in Singapore and Arunima Kumar in Bengaluru; Additional reporting by Florence Tan and Siyi Liu; Editing by Rod Nickel and Stephen Coates)

((Georgina.McCartney@tr.com))

Tech stocks help Nikkei eke out small gain

TOKYO – Japan’s Nikkei share average closed slightly higher on Friday as technology stocks tracked Wall Street’s overnight gains, while a stronger yen weighed on market sentiment and US tariff worries lingered.

The Nikkei rose 0.15% to 39,572.49 to post its third straight session of gains. It, however, fell 1% for the week in its fourth weekly drop in five.

The broader Topix gained 0.24% to 2,788.66 on Friday.

Chip-making equipment maker Tokyo Electron rose 3.33% to provide the biggest boost to the Nikkei.

Fujikura, which makes fibres used by data centres and is a gauge for AI-related investments, jumped 4%.

“Gains in Japanese equities were limited as the yen strengthened and the market was also concerned about US President Donald Trump’s tariff policy and its impact on Japanese firms,” said Kentaro Hayashi, a senior strategist at Daiwa Securities.

Trump has said Feb. 1 would be the date that he imposes 25% tariffs on imports from Canada and Mexico.

The yen was on track for its best monthly start to the year since 2018 on Friday, helped by the view that the Bank of Japan (BOJ) is likely to keep raising rates this year while its global peers elsewhere look to ease policy.

A stronger Japanese currency tends to hurt shares of exporters, as it decreases the value of overseas profits in yen terms when firms repatriate them to Japan.

“Although the market was not totally pessimistic. Investors became selective and bought stocks with a positive outlook and returns,” Hayashi said.

NEC surged 18% after the computer maker raised its annual operating profit forecast and announced a 5-for-1 stock split.

Among losers, scandal-hit Fuji Media fell 4% after the television network operator slashed its annual net profit forecast by two-thirds citing a sharp drop in advertising revenue.

Truck maker Hino Motors tumbled 12% to become the worst percentage loser on the Nikkei.

(Reporting by Junko Fujita; Editing by Subhranshu Sahu)

Yields rise as White House says tariffs will start on Saturday

US Treasury yields rose on Friday, a day ahead of new US tariffs due to be levied on imports from Mexico, Canada, and China, and as traders weighed data showing strong consumer spending and a moderate increase in inflation in December.

President Donald Trump on Saturday implemented tariffs of 25% on Canadian and Mexican imports and 10% on Chinese goods with immediate effect, White House spokesperson Karoline Leavitt said on Friday.

Uncertainty over the impact of tariffs is muddying the outlook on the economy, with details on the implementation, including whether there will be exemptions, also unsure.

“There’s a lot of uncertainty about tariffs and really what comes next on that front,” said Gennadiy Goldberg, head of US rates strategy at TD Securities in New York.

The 2-year note yield, which typically moves in step with Fed interest rate expectations, was last up 3.5 basis points on the day at 4.232%.

The yield on benchmark US 10-year notes rose 5.9 basis points to 4.571%.

The yield curve between two-year and 10-year notes steepened by around 2 basis points to 33.7 basis points.

Yields briefly jumped earlier on Friday after data showed that consumer spending, which accounts for more than two-thirds of US economic activity, beat estimates with a 0.7% jump during December.

Meanwhile, the core personal consumption expenditures (PCE) price index rose 0.2% last month, in line with economists’ expectations, for an annual gain of 2.8%. The headline PCE price index rose 0.3% last month for an annual gain of 2.6%.

“The very strong personal income spending data continues to suggest that the consumer remains resilient. At the same time, you do have inflationary pressures continuing to fade,” Goldberg said. “It really underscores that the Fed can keep rates on hold, at least for the next meeting or so if data like this continues.”

Fed Chairman Jerome Powell said on Wednesday that the US central bank wants to see further progress in inflation before cutting rates, but also expressed confidence that it remains on the right path to ease back closer to the Fed’s 2% annual target.

Chicago Fed President Austan Goolsbee said Friday’s inflation data was a bit better than expected and gives him comfort that inflation is on a path to the 2% target, adding that he still expects the US central bank’s policy rate to be “a fair bit” lower in 12 to 18 months.

Fed governor Michelle Bowman said on Friday she still expects declining inflation to allow further interest rate cuts this year, but feels rising wages, buoyant financial markets, geopolitical risks, and upcoming administration policies could slow the process and keep price pressures elevated.

The breakeven rate on five-year US Treasury Inflation-Protected Securities (TIPS) rose above 2.60% to its highest since March 2023 and was last at 2.596% after closing at 2.535% on Thursday. The 10-year TIPS breakeven rate was last at 2.429%, indicating the market sees inflation averaging above 2.4% a year for the next decade.

Annual inflation data should cool in the coming months due to favorable comparisons with hot readings from a year ago, weighing in favor of lower interest rates, said Stan Shipley, macro research analyst at Evercore ISI.

The Treasury will also release its refunding estimate for the coming quarters next week, with its broad borrowing estimate due on Monday and its more detailed estimate due on Wednesday.

(Reporting by Karen Brettell in New York and Douglas Gillison in Washington, Editing by Nick Zieminski, Deepa Babington, Will Dunham, and Matthew Lewis)

Wall St ends lower as White House says Trump to implement tariffs

NEW YORK – US stocks ended lower on Friday, with indexes losing ground after the White House said US President Donald Trump will implement tariffs of 25% on Canadian and Mexican imports and 10% on Chinese goods.

Investors have been bracing for further tariff news after Trump has repeatedly warned about using the measure. Uncertainty over the impact of tariffs has muddled the outlook for the economy and inflation.

“I would have thought the market would be down more,” said Rick Meckler, partner at Cherry Lane Investments, a family investment office in New Vernon, New Jersey. “It’s not just the announcement itself, which I think probably impacts a select number of industries. It’s whatever retaliation moves are taken.”

Stocks turned lower on Friday afternoon after the White House said the tariffs against Canada, Mexico and China would take effect on Saturday.

Friday capped a heavy week of quarterly results from US companies as well. Apple shares ended down 0.7%. They were higher early in the session after the company gave upbeat executive comments in its earnings on Thursday, in a sign it expects to recover from a dip in iPhone sales as it rolls out artificial intelligence features.

Energy led declines among S&P 500 sectors on Friday, with Chevron shares falling 4.6% after the company reported fourth-quarter earnings below estimates and Exxon Mobil easing 2.5% after its quarterly results.

The Dow Jones Industrial Average fell 337.47 points, or 0.75%, to 44,544.66, the S&P 500 lost 30.64 points, or 0.50%, to 6,040.53 and the Nasdaq Composite lost 54.31 points, or 0.28%, to 19,627.44.

Indexes registered gains for the month of January, with the Dow up 4.7%, the S&P 500 up 2.7%, and the Nasdaq up 1.6%.

For the week, the Dow was up 0.3%, but the S&P 500 declined 1% and the Nasdaq fell 1.6%. Tech shares sold off on Monday after Chinese startup DeepSeek unveiled a breakthrough in cheap AI models.

Early in Friday’s session, economic data reinforced expectations that the Federal Reserve would keep interest rates unchanged for longer.

Reports showed strong US consumer spending and a moderate increase in inflation in December.

“Clearly, it makes total sense that the Fed didn’t do anything this week, and it makes sense (Fed Chair) Jay Powell would say they’re not in a hurry to lower rates,” said Scott Wren, senior global market strategist at Wells Fargo Investment Institute in St. Louis, Missouri.

The Fed left rates unchanged in its policy announcement on Wednesday, and Powell said the US central bank wants to see further progress in inflation before cutting rates.

After the closing bell, Trump said he expects his administration to impose tariffs related to oil and gas around Feb. 18. But he did not name a specific country to which the tariffs would apply or specify any more details about the plans.

Declining issues outnumbered advancers by a 2.3-to-1 ratio on the NYSE. There were 231 new highs and 54 new lows on the NYSE.

On the Nasdaq, 1,491 stocks rose and 2,913 fell as declining issues outnumbered advancers by a 1.95-to-1 ratio.

Volume on US exchanges was 15.78 billion shares, compared with the 15.5 billion average for the full session over the last 20 trading days.

(Reporting by Caroline Valetkevitch in New York; Additional reporting by Shashwat Chauhan and Sukriti Gupta in Bengaluru; Editing by Arun Koyyur and Matthew Lewis)

Gold surges past USD 2,800 as tariff threats reignite record rally

Gold prices surpassed the key USD 2,800 mark for the first time on Friday, fuelled by a rush to safety following US President Donald Trump’s tariff threats, which heightened concerns about global economic growth and inflationary pressures.

Spot gold rose 0.3% to USD 2,801.29 per ounce by 01:41 p.m. ET (1841 GMT), after hitting a record peak of USD 2,817.23 earlier in the session.

US gold futures settled 0.4% lower at USD 2,835, trading a premium to spot gold rates.

“There’s a lot of uncertainty out there right now and also wait-and-see attitude on the geopolitical stage with tariffs,” said Bob Haberkorn, senior market strategist at RJO Futures.

Trump has set a Saturday deadline to slap a 25% tariff on imports from Canada and Mexico and said he was still considering new tariffs on Chinese goods.

Bullion, a preferred asset during times of economic and geopolitical turmoil, is on track to record its best monthly performance since March 2024, rising nearly 7% so far. The metal surpassed multiple record peaks last year.

Additionally, “the mixed signals we’re getting from the Fed and the Trump administration right now is causing uncertainty in the market … Trump wants to cut interest rates, while the Fed wants to hold them steady,” Haberkorn added.

Earlier this week, Federal Reserve Chair Jerome Powell said there would be no rush to cut interest rates again, contradicting Trump’s earlier calls saying he wants borrowing costs to be lowered.

US prices increased in December while consumer spending surged, suggesting that the Fed could delay cutting interest rates for some time this year.

Among other metals, spot silver fell 0.8% to USD 31.42 after hitting an over one-month high on Thursday.

“We expect this strength in (silver) prices to attract subsequent discretionary trader interest, given this cohort remained nearly flat as of last week, with gold printing new all-time highs and the (gold-to-silver) ratio remaining at elevated levels,” TD Securities said in a note.

Platinum firmed 1% to USD 975.80, while palladium rose 2.2% to USD 1,011.

All three metals were headed for monthly gains.

(Reporting by Anmol Choubey and Swati Verma in Bengaluru; Editing by Shailesh Kuber, Tasim Zahid, and Mohammed Safi Shamsi)

Trump tariff uncertainties push gold to record high

Jan 31 (Reuters) – Safe-haven demand due to geopolitical uncertainties and concerns over global economic growth amid US President Donald Trump’s tariff plans have hoisted gold prices to a record high, once again bringing the key USD 3,000 threshold onto investors’ radar.

Spot gold climbed to a record high of USD 2,798.40 a troy ounce on Thursday, starting 2025 with fresh vigor after logging its strongest annual performance since 2010 last year.

“There’s concerns that some of the (economic) growth may come down because of the policies and tariffs that the current administration is looking to implement,” said Phillip Streible, chief market strategist at Blue Line Futures.

“So when you’ve got higher inflation and lower growth, stagflation becomes the economic theme. Gold tends to work very well in that particular environment.”

Trump’s tariff plans are widely perceived as inflationary and with potential to trigger trade wars, driving up safe-haven demand for bullion as it is traditionally seen as a hedge against price pressures and geopolitical uncertainty.

“I can see (gold) trying to reach up to that USD 2,900 level at some point during the first quarter; after we breach that, we’ll set new levels,” said Bob Haberkorn, senior market strategist at RJO Futures.

“At some point this year, gold could ultimately trade north of USD 3,000.”

The US market

Amid concerns about the U.S. import tariff plans, the U.S. gold futures have been trading at a premium to the spot price for several months and widened the price spread again on Thursday.

In a sign of these concerns, 12.9 million troy ounces of gold were delivered to COMEX-approved warehouses GC-STX-COMEX since late November, raising stocks there by 73.5% to 30.4 million ounces, the highest since July 2022.

The deliveries came from London, Switzerland and other major gold-trading hubs.

The London Bullion Market Association said on Thursday that it was monitoring the situation and liaising with CME Group and US authorities.

London gold market stocks and liquidity remain strong with the average daily trade volume since the start of January is 47.1 million ounces, the association added.

Gold and the US rate expectations

Gold hit multiple record peaks last year, bolstered by the Federal Reserve’s rate-cutting cycle, safe-haven demand and robust central bank buying.

The Fed, in its January meeting kept benchmark interest rates unchanged as widely expected, after easing a full basis point in 2024. This marks the first pause since the start of its easing cycle in September.

The non-yielding bullion tends to thrive in a low-interest rate environment.

As to purchases by central banks, the People’s Bank of China has been a key driver of gold demand as it kept on adding bullion to its reserves over the past year despite the price growth – in what analysts see as the PBOC’s broader strategy to diversify the reserves.

Analysts suggest that continued purchases by China’s central bank could provide further support to gold prices in the coming months.

Editing by Lisa Shumaker)

2024 Mid-Year Economic Briefing: Navigating the Easing Cycle

Investing with Love: A Mother’s Guide to Putting Money to Work

Investor Series: An Introduction to Estate Planning

Quarterly Economic Growth Release: 5.4% Q12025

Policy rate views: Uncertainty stalls cuts