Gold spikes past $4,950 as risk appetite struggles to return

It took the US president a single minute to flip sentiment from fear to greed. That came during Wednesday’s Davos speech, when he said he is not considering military action to take Greenland by force — even though he could (!) — and that discussions with NATO allies on Greenland had led to a framework that justified rolling back the latest tariffs imposed on a handful of European countries.

A relief rally followed, BUT didn’t last long. As we enter the second year of the Trump administration, it is increasingly clear — even for those who still had doubts — that US deals and agreements offer little guarantee of stability. New tariffs could be announced at any time, and they could be as ambitious as US objectives themselves — regardless of whether they make sense, are legal, or are accepted by the rest of the world.

This broader understanding of risk likely cast a shadow over yesterday’s relief rally. The S&P 500 gained, but by less than 1% on Thursday, and remains below its weekly opening level. The same is true for the Nasdaq 100.

Gold spiked past $4950 per ounce this morning. It looks like we’ll be hitting the $5000 before we thought! That move is a clear sign that the risk appetite is not fully restored!

Within tech, Nvidia also failed to meaningfully extend gains on Thursday. Appetite above the 50-day moving average — currently just below $185 per share — remains limited. Even CEO Jensen Huang’s comments that AI adoption will require several more trillions of dollars in investment, and reports that OpenAI’s Sam Altman is seeking $50bn in Middle Eastern funding — some of which would ultimately flow to Nvidia as a GPU supplier — failed to whet investor appetite.

Fresh news is instead boosting appetite in what used to be considered “boring tech”: memory chip makers — companies few investors could even name until the last quarter of last year. These are the stocks attracting inflows right now. And how! SanDisk, for example, is up more than 1’000% since last August; Western Digital has gained more than 250%, while Micron — which has made a few headlines — is up around 245% over the same period. The rally reflects a memory chip shortage that is being exacerbated by the soaring demands of AI infrastructure. And while the memory chip market is historically defined by boom-and-bust cycles, there is growing consensus that this time a structural shift is underway, meaning the current upswing could prove longer — and more memorable — than previous ones.

Looking deeper, however, such sharp price gains have pushed valuations to extremes. SanDisk now trades on a PE ratio of around 720 — meaning investors are paying 720 times current earnings. While this multiple should compress as demand explodes and pricing power lifts revenues and profits significantly, a ratio of this magnitude still places the stock firmly in bubble territory. Memory chip manufacturing remains capital-intensive, capacity constraints persist and while pricing power is clearly the main upside, and a longer-lasting cycle may justify higher forward valuations, current levels leave no room for disappointment. After such a powerful rally, a pullback would not be surprising. Samsung for comparison trades at a PE ratio of around 32, after an impressive rally as well. And SK Hynix’s PE ratio is less than 15. Just saying.

One final point on the sector. Intel — which jumped 11% on Wednesday amid the Greenland-driven relief rally — fell roughly 11% in after-hours trading yesterday after disappointing earnings. The company reported a net loss of $600m, or 12 cents per diluted share, compared with a $100m loss, or 3 cents per share, a year earlier. To make matters worse, Intel delivered soft guidance for the current quarter, citing insufficient supply to meet seasonal demand, though it expects conditions to improve in the second quarter. There remains hope that Intel will eventually benefit from the AI investment wave — but when?

Zooming out, the surge in AI investment continues to underpin strong US growth. According to the latest GDP update released yesterday, the US economy expanded by 4.4% in Q3 last year, up from 3.8% the previous quarter and above the 4.3% Bloomberg consensus. Price pressures picked up as well, with core PCE inflation rising from 2.6% to 2.9%, in line with expectations. While the Federal Reserve (Fed) has been out of focus recently, strong growth and above-target inflation have sharply reduced the probability of near-term rate cuts. Fed funds futures now imply just a 16% chance of a March cut, down from around 50% at the start of the year. The US 2-year yield pushed above 3.60% for the first time in more than six weeks, while the 10-year yield stabilized after dipping to around 4.25%.

Elsewhere, stress in Japanese government bond markets, sparked by Sanae Takaichi’s expansive fiscal ambitions, appears to be easing as a hectic week draws to a close. Still, her proposals — including suspending the consumption tax on food for two years as part of a campaign platform ahead of a snap general election — are difficult to square with Japan’s public debt, which sits near 215% of GDP. The measure alone would cost roughly ¥5 trillion per year (around $30bn), and crucially, no clear financing plan has been outlined! Does this remind you of another lady? And all this is happening at the same time, the Bank of Japan (BoJ) is willing to normalize policy and is no longer absorbing bonds at the pace it once did.

Why does this matter? Because Japanese investors are among the largest holders of US Treasuries. As yield differentials between the US and Japan narrow, incentives to repatriate capital increase — potentially draining global liquidity and triggering broader market sell-offs. This risk surfaced several times last year without fully materialising, likely thanks to ample global liquidity. The open question is for how long that buffer can last.

Time will tell.