Market Insights February 11, 2025

A measured response from Beijing

On February 4, the implementation of a 10% tariff on all Chinese imports to the United States prompted a response from Beijing. In retaliation, China announced a series of measures, including tariffs on certain U.S. products, restrictions on the export of strategic minerals, and the launch of antitrust investigations targeting Google. Are we on the verge of a new chapter in the 2018 trade war? At first glance, no. Beijing’s reaction remains largely symbolic. China has imposed approximately 12% in additional duties on just $14 billion worth of U.S. goods, whereas Washington has levied a 10% tax on $525 billion of Chinese products. For comparison, during the 2018 trade conflict, China responded with 25% tariffs on $50 billion worth of U.S. goods, adopting a far more direct and confrontational approach to U.S. sanctions. This restraint suggests a more calculated and coordinated strategy from Beijing. So far, financial markets indicate a limited risk of escalation. Upcoming developments will be crucial, particularly a potential dialogue between Xi and Trump and the possibility of relinquishing control of TikTok as a goodwill gesture - both of which could shape the trajectory of trade dynamics over the next four years.

The invaluable power of diversification!

After a brief consolidation at the end of 2024, gold prices have resumed their upward trajectory at the start of this year. This precious metal is setting new all-time records, rapidly approaching the psychological threshold of $3’000 per ounce. Notably, this recent rally is unfolding even as the US dollar strengthens against most major currencies, a particularly remarkable development given that the price of this precious metal, like other commodities, typically exhibits a negative correlation with the dollar.

We remain firmly convinced that the fundamentals continue to support gold’s bullish outlook, especially due to the sharp rise in demand from central banks since the onset of the war in Ukraine and the freezing of the Russian central bank’s assets. For investors, diversification into precious metals offers numerous advantages. Historical economic data consistently show that including precious metals in investment portfolios helps mitigate risks during periods of economic turbulence and significant financial market volatility. Moreover, it provides a reliable hedge against inflation. As consumer prices rise, the value of traditional currencies tends to diminish, eroding investors' purchasing power. Precious metals, on the other hand, generally preserve their value, or even appreciate, during inflationary periods.

Current geopolitical and economic uncertainties further justify the inclusion of gold and other precious metals in investment portfolios. These uncertainties have intensified following Donald Trump’s return to the White House, with the potential use of tariff hikes posing risks to global economic growth and the possibility of reigniting inflation. However, such measures are likely part of strategic negotiation tactics employed by the US President.

Last autumn, we realized some profits on gold as investor optimism towards the metal reached exceptionally high levels. The year-end consolidation effectively corrected this excess, paving the way for a renewed bullish phase. As a result, we are increasing our exposure in portfolios, setting a new target allocation of 5%. This allocation can be implemented through physical gold holdings or via diversified investment products focused on precious metals.

This week’s figure: 3%

The unemployment rate in Switzerland continued to climb in January, primarily due to prolonged weakness in the country’s manufacturing sector. The watchmaking industry has also been affected. This deterioration in the labor market is expected to justify further monetary policy easing by the Swiss National Bank (SNB), which is likely to cut its key interest rates again in March.