Developments in Financial and Commodity Markets

Major banksʼ outlooks for 2026 are cautiously optimistic regarding growth, though largely driven by fiscal expansion, monetary easing, and AI‑led investment rather than underlying productivity gains. Europeʼs recovery hinges on debt‑funded public spending, raising hopes for growth as well as questions over sustainability. Chinaʼs launch of Hainan as a free‑trade port demonstrates Beijingʼs push to deepen global integration while selectively liberalising aspects of its economy. Meanwhile, precious metals continue to outperform amidst some seasonal volatility.

In October 2025, most UK trading businesses reported stable turnover compared with the previous month, while 51% reported turnover had stayed the same, 14% saw increases, and about 26% reported declines. Economic uncertainty remained the most significant challenge affecting turnover, alongside competition and rising material and labour costs. In late November, 35% of medium and large businesses reported rising staffing costs and wage increases compared with earlier in the year, although levels remained only slightly above those of 2024. Most firms reported no impact from worker shortages, although recruitment difficulties persisted, driven mainly by skills shortages and low application volumes. Among exporting businesses, 34% reported being affected by US tariffs, and 46% expect to pass higher costs on to consumers.

For most of history, money was tied to tangible productive assets like grain, livestock, and gold. As the world shifts towards an electrified and digital economy, the fundamental unit of value may be re‑emerging in a new form: the kilowatt hour. Electricity underpins productive capacity, making it a universal, measurable, and storable base of economic activity. In this framework, the “electro‑dollar” (or electro‑yuan) may replace the petrodollar as the foundation of modern output. China appears to be operating on this principle, with electricity generation capabilities that far outpace its competitors. Beijing is channeling this power surplus into strategic industries to strengthen both its self‑sufficiency and its global industrial leadership.

Precious Metals and Commodities

Gold, silver, and copper are likely to experience sideways movement in the short and mid‑term. Oil prices are expected to rise over this period, while agricultural commodities are anticipated to enter a new growth cycle as inflationary pressures mount. All precious metals and commodities are expected to remain on 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 that 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 differential equations, which suggest that gold will likely outperform stocks from 2022 onwards. The model was calibrated in 2019 and has not been adjusted for new input data since.

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 with 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.

27 Jan 2026 | Categories: Gold, Silver, US, Platinum, Palladium, UK

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