Global markets presented a facade of calm and prosperity at the start of the week, with European markets climbing and Britain’s FTSE 100 reaching a record high. The US S&P 500 also edged towards record territory, buoyed by a sharp drop in oil prices and a new trade deal between the US and India. However, beneath this veneer of stability, significant concerns emerged, particularly in Asian markets where gold and silver prices plummeted after posting major falls.
Equity markets in Asia also experienced declines, with South Korea’s KOSPI Index plunging due to worries about the sustainability of artificial intelligence (AI) investments. Oracle announced plans to raise $US50 billion to fund additional cloud computing capacity, mainly to meet contracts with OpenAI, raising questions about OpenAI’s financial viability. Nvidia CEO Jensen Huang also cast doubt on the certainty of Nvidia’s supposed $US100 billion investment in OpenAI, further fueling market unease.
These concerns about AI spending and the sell-off in precious metals are causing investor skittishness. While the precious metals sell-off has been partly attributed to speculation about the US Federal Reserve’s new chairman, the truth is that a speculative bubble has formed and was just waiting to pop. OpenAI is at the centre of interconnected investments and sales contracts, so any issues could ricochet through the tech stocks it has deals with.
Despite these underlying issues, Wall Street found relief in a surprisingly strong ISM manufacturing survey, indicating robust economic activity in the US. Investors focused on this positive data, temporarily setting aside their concerns. However, questions remain about the future of precious metals and AI spending, with analysts closely monitoring these developments and their potential impact on market stability. Deutsche Bank maintains its forecast for gold to hit $US6000 an ounce.
