Between the gold rush and AI hype: what can we expect on the home stretch of 2025?

While autumn has only just begun, this also means we are gradually approaching the home stretch of the investment year. Regardless of the developments from here on out, one thing is already clear – 2025 will be remembered in many ways. Whether it is Donald Trump, who has dominated the news throughout the year, or the volatility of the global equity markets, which have seen an astonishing comeback after the dramatic slump around “Liberation Day” in April.

Despite numerous uncertainty factors worldwide, both the American and European stock markets have recently reached new all-time highs. The fantasy surrounding artificial intelligence was the main driving force here.

Artificial intelligence – savior or devil’s work?

However, the development of technology stocks in the wake of the AI hype is also prompting an increasing number of warning voices. Is a new bubble forming here? Even Jeff Bezos spoke of an AI bubble at the beginning of October. Still, this widely reported headline was often taken out of context – the Amazon founder was referring to a potential “industry bubble” in which investors would find it difficult to distinguish between good and bad investments. His core message was and is that AI is real, has a huge impact on society, and will change every industry forever.

Based on this conviction, Amazon is one of the largest investors in the AI sector, alongside Microsoft, Alphabet, and Meta. The combined investments of the four tech giants alone are expected to exceed USD 400bn in the coming year.

These investments are not only driving the equity markets – they are now also making a significant positive contribution to growth in the US economy. In the medium term, companies will have to prove whether the huge investments have paid off. However, it is already clear today that the aforementioned technology leaders are benefiting disproportionately from the AI value chain. Balance sheets are healthy and profit growth is enormous, as a result of which valuations appear high but not excessive despite significant gains

In spite of the aforementioned, the recent spate of cross-shareholdings, which could trigger a domino effect in any direction, is cause for concern. Leading the way, ChatGPT developer OpenAI made numerous headlines; the American artificial intelligence organisation is now considered the most valuable private company in the world at a valuation of USD 500bn. The future will show whether an estimated annual turnover of just USD 12bn and an annual loss of USD 8bn justify this valuation. It is clear that misallocations are currently taking place in the market – but there is also no doubt that AI will lead to increases in productivity and profits.

In Discretionary Portfolio Management, we continue to focus exclusively on established companies that have demonstrated a healthy profit momentum and strong business models for years.

Markets in a “gold rush”

Another high-flyer in the past quarter was gold. Gold is a limited commodity – it cannot be multiplied at will, cannot be sanctioned and does not involve any counterparty risk. These are all characteristics that have always given the precious metal the status of the ultimate crisis currency.

There is currently no shortage of global trouble spots and the absolute record level of over USD 4,200 per troy ounce – despite the recent setback – reveals the volatile environment in which we currently find ourselves. With an annual gain of almost 60%, the legitimate question is of course how long the gold price can continue to develop in this way.

After such a strong performance, caution is definitely warranted – a breather would certainly be beneficial. In the medium term, however, there is probably still some potential, because unlike in the 1970s, the gold price is not currently being driven primarily by small investors (hoping for quick profits). On the contrary, by far the largest group of buyers are global central banks, which have continuously stepped up their gold purchases in recent years. Central banks around the world now hold more than 36,000 tonnes of gold in their vaults. This means that gold reserves currently exceed even the holdings of US Treasury bonds. With growing doubts about the British pound, a strong buyer base is likely to remain in the medium term.

Is France about to become the new Italy?

The markets are defying the global trouble spots, of which there are currently more than enough. Especially in times like these, strong and, above all, united political action would be important. Donald Trump’s unconventional politics were often seen as an opportunity for Europe – but hope is gradually giving way to disillusionment. Friedrich Merz’s grand coalition is not really getting off the ground and is primarily notable for its quarrels.

The situation in France is even more dramatic, with Macron’s presidency heading for a bitter end. The former political star is clinging doggedly to power, which without a parliamentary majority is like trying to square a circle. Since January last year, Macron has worn out four prime ministers, and the repeated appointment of Lecornu within a few days seems like an act of desperation. The major rating agencies are already reacting – after Fitch, S&P has now also surprisingly downgraded France’s credit rating to A+.

As shown below, France now has to pay higher interest rates to its creditors than Italy, the former no.1 among debtors. However, this is not only due to the political crisis in France, but also to the disciplined budgetary policy of Georgia Meloni, the Italian Prime Minister.

No golden mean

Just as the weather seems to fluctuate between “hot” and “cold”, the capital markets have recently been subject to relative extremes in one direction or the other as well. A gentle cooling would be beneficial in many sub-segments. The US President could once again be responsible for this cooling off, or at least for more volatility – whether it be the reignited trade conflict with China or the ongoing shutdown of the US federal administration.

The latter also means that we are currently flying blind, so to speak, with regard to the US economy. The statistics authorities are also affected by the shutdown, meaning that economic data is being published with a significant delay. At least Jerome Powell has recently sent positive signals that he is likely to cut interest rates again at the end of October. In addition to the upcoming interest rate cuts, the reporting season ahead of us could also provide further positive impetus. As usual, the major US financial institutions kicked things off, and the initial results once again point to solid earnings.

 

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