Gold Prices Slide While Global Stock Sell-Off Driven by AI Concerns
Monday, 1/27/2025 15:48
GOLD PRICES sank on Monday as global stocks fell, with US technology stocks declining amid concerns over US dominance being challenged by more affordable artificial intelligence (AI) models from China, writes
Atsuko Whitehouse at BullionVault.
Chinese AI startup DeepSeek on Monday released a new model that outperformed OpenAI's latest release in several third-party tests. The cost of training and developing DeepSeek's models reportedly represents only a fraction of what is required for OpenAI or Meta Platforms Inc.'s best products.
Shares of Nvidia Corp., which provides advanced chips, systems, and software for AI, fell as much as 8.3% during early US trading on Monday while ASML Holding NV, a major producer of chip-making equipment, sank 9%. European stocks and US futures contracts also declined, with Europe’s Stoxx 600 down 0.7%, Nasdaq 100 futures plunging 4.4%, and S&P 500 futures falling 2.5%, before paring some of their losses.
Spot gold dropped 1.0% to $2744 per ounce after climbing in the previous session to $5 per ounce below its Halloween’s all-time high of $2790, recording a 2.3% gain for the week. This marked its best weekly performance since November, driven by concerns over President Donald Trump’s new policies,
particularly tariffs.
“While the stream of volatility-inducing Trump tariff headlines continues, another story from out of the blue has erupted across global markets in the crucial AI space and has blindsided risk sentiment,” said derivatives platform Saxo Bank's commodity strategist Ole Hansen in the latest note.
NVIDIA’s stock skyrocketed over 170% last year, alongside other technology stocks, driven by surging demand from big tech customers expanding their AI data centres and cloud computing infrastructure. The Nasdaq Composite gained 28.6% in 2024, while the S&P 500 rose 23.3%.
Gold prices
gained 26.6% during the same period, delivering its strongest performance in 14 years. "The yellow metal served as
an effective hedge against the heightened geopolitical uncertainty and market volatility," commented the World Gold Council.
Traders and investors are preparing for a crucial week of market events which includes policy decisions from the Federal Reserve and European Central Bank on Wednesday and Thursday, as well as the release of the Fed’s preferred inflation data on Friday.
The odds of 'no change' at this week's Federal Reserve’s policy meeting have risen to 99.5%, according to the
CME derivatives exchange's FedWatch tool, up from 89.3% one month ago. This comes despite President Trump calling for an
immediate rate cut last week at the World Economic Forum in Davos, Switzerland.
Inflation, which reached a four-decade high in 2022, has dropped to 2.8% in November, based on the Fed’s preferred measure. The latest core Personal Consumption Expenditure (PCE) price index for December is forecasted to remain at 2.8% year-over-year, still well above the Fed target of 2%.
Ten-year US Treasury yields – a benchmark rate for government as well as many finance and commercial borrowing – edged lower to a one-month low of 4.5% on Monday. The Dollar index – a measure of the US currency's value versus its major peers – also fell 0.3% to a one-month low after suffering the worst week in 14 months, as Trump appeared to soften his stance on tariffs against China.
The US and Colombia averted a trade war on Sunday after the White House announced that the South American nation had agreed to accept military aircraft carrying deported migrants.
Trump last week vowed to impose new tariffs, announcing a new 1 February 2025 deadline for 25% tariffs against Canada and Mexico and 10% duties on China and the EU.
Gold prices on the Shanghai Gold Exchange fell 0.4% on Monday from Friday’s all-time high of ¥646, resulting in a $6 per ounce premium to London prices ahead of The Chinese New Year holiday starting Wednesday. Wholesale bullion in China, the world’s largest gold consumer, flipped from an $11.8 premium to a $0.8 discount last week.
Gold priced in Euros dropped 1.3% on Monday from Friday’s London benchmark all-time high of €2646, while
the UK gold price in Pounds per ounce fell 1.5% from its record high of £2232.
Among gold-backed ETF investment trusts, the giant GLD last week recorded its largest one-week outflow in 30 months, shrinking by 2.7% as prices approached all-time highs. The No. 2 gold ETF, IAU, also declined over the week, falling by 0.6%.
Meanwhile, the biggest silver ETF, iShares' SLV recorded its largest weekly decline in a month last week.
Prices for silver, primarily an industrial metal, which finds nearly 60% of its annual demand from industrial uses, also fell 1.6% to $30.34 per ounce.
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