Global markets are navigating a period of shifting economic power and rising geopolitical tensions. China is expanding its use of the yuan in trade and investment, strengthening its influence in emerging markets and supporting its long-term strategy of accumulating gold reserves. Tensions between China and Japan may introduce a new source of geopolitical risk, with potential spillovers into global currency and equity markets due to Japanʼs economic fragility and high level of foreign asset holdings.

 

Research by the Bundesbank looking at 25 emerging and 21 advanced economies between 2005–2023, shows that during recent major crises, such as 2008 and the Covid-19 pandemic, bonds suffered the steepest outflows, far exceeding those from equities. The findings reveal that bond markets can be highly vulnerable during crises. This challenges the conventional 60:40 portfolio approach, indicating that bonds may not be fulfilling the stabilising role during periods of elevated global uncertainty as well as commonly thought.

However, a similar passive strategy, which has outperformed a representative 60:40 equity-bond strategy without any significant risk-loading, is the equity-gold portfolio, where equity retains its traditional role in targeting growth and expanding the portfolio returns, and gold acts as a hedge against the negative effects of monetary inflation.

Dollar uncertainty, driven by weak US economic signals, political tensions, and concerns over debt sustainability, has caused the euro to be viewed as a safer asset by foreign investors throughout 2025. In their Q4 Outlook, UBS has kept its EUR/CHF forecast at 0.94 through to mid-2026, despite recent franc strength driven by global uncertainty and dollar debasement. The bank expects safe-haven demand for the Swiss franc to ease once US political and trade tensions subside.

 

With Swiss interest rates at zero, UBS sees better euro returns ahead, which could support a gradual EUR recovery and stabilisation of the exchange rate. Overall, UBS anticipates the francʼs current strength will moderate in the medium term.

Precious Metals and Commodities

In the short term, gold, silver, and oil are likely to see sideways movement, but remain bullish in the mid and long term. Meanwhile, copper, oil, and agricultural commodities are projected to trade mostly flat over the short and medium term, yet continue along a long-term upward trajectory.

 

Market Risk Signal

Gold vs stocks forecasting model

The current level of debt relative to real economic output is similar to the situation in the Germanic nations prior to the World Wars in the 1910s, and in France leading up to the French Revolution in the 1790s. In such high-debt scenarios, the likelihood of instability and a deleveraging process is greatly increased. Since gold holdings are typically free from anotherʼs liability, the deleveraging process has a gentler impact on gold prices than on equities. The anticipated deleveraging process can be modelled using coupled differentialequations, which suggest that gold will likely outperform stocks from 2022 onwards. The model was calibrated in 2019 and has not since been adjusted for new input data.

According to the model, the peak at which economic activity assets (such as equities) will outperform gold is around Q3 2022. From that point forward, the model predicts an outperformance of gold relative to stocks (light line). When compared to real data on the stock-to-gold price ratio (dotted line), the trend of gold outperforming stocks appears to have begun early in 2022. Whether a short-term reversal will occur remains uncertain; however, the long-term trend towards stronger gold performance remains evident.

 

Gold Feature

For decades, the world of gold was defined by the West. London set the price, New York traded the futures, and Zurich refined the bars. But the balance may be quietly shifting eastward, as Bloomberg reports, by the force of Asian wealth and Chinaʼs growing financial ambitions. Asians see gold beyond its value as a passive hedge against inflation, and allocations to gold in wealthy Asian portfolios has doubled in 2025. Billionaire families in Hong Kong have begun lending out their bullion to jewellers, quietly compounding their holdings at yields of 3–4% a year. Some have entered into profit-sharing ventures with established precious metals traders, turning their bullion into an active, profitable business, while others are arbitraging between Dubai and Hong Kong. And when liquidity is needed, gold bars serve as collateral for everything from stock purchases to crypto trades.

Yet the most profound shift is happening at the systemic level. Chinaʼs Shanghai Gold Exchange (SGE) has opened its first offshore vault in Hong Kong, allowing international investors to buy yuan-denominated gold and take delivery outside the mainland for the first time. This vault is the first step in a planned Asian-centred, 24-hour gold trading network spanning Hong Kong, Singapore, Zurich, and Dubai, that could eventually compete with the LBMA and COMEX. With incentives designed to boost liquidity, and with the Bank of China leading the effort, Beijing is building a sanctions-resistant financial architecture to strengthen the yuanʼs global role. While the SGEʼs total trading volume remains small compared to the LBMA and COMEX, these developments represent the first credible challenge to their dominance in recent history.

Domestic reforms in China may further reinforce the shift. New rules for VAT are making investment gold more attractive by raising costs for jewellery, effectively pushing consumers towards bars and coins tied directly to the SGE system. Local retailers and small banks are facing higher prices and thinner margins, which is likely to result in the market power being consolidated among Chinaʼs major institutions. Individually, these developments are subtle, but collectively, they may mark the genesis of a reshuffling of global gold dynamics.

23 Dec 2025 | Categories: Gold, China, Dollar, US

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