Gold broke through $5,000 per ounce for the first time in history. Prices have risen more than $650 just in January. Last week's increase of 8.5% was the largest weekly increase ever measured in dollars. It was also the largest percentage increase since the pandemic panic in March 2020. Silver also surpassed $100 per ounce, up 44% so far this year.
The flight to safe havens comes at the same time as the markets prepare for a triple threat: escalation of US-Canada-China tariffs, possible intervention in the yen market, and increasing likelihood of a US shutdown.
The gold rally reflects weakened trust
TD Securities strategist Daniel Ghali told the Wall Street Journal that the gold rally is linked to questions of trust in the global financial system. Trust is shaken, but not broken, he said, adding that if it is broken, the upward trend could last much longer.
Several factors contribute to the rise in gold. The dollar has weakened due to Trump's intervention in Venezuela, pressure on Fed Chair Jerome Powell, and threats of tariffs concerning Greenland. The Fed's rate cuts have reduced the yield on government bonds and money market funds, lowering the opportunity cost of gold.
China has been buying gold for 14 consecutive months, and Poland's central bank recently approved a significant acquisition. Cycle-adjusted P/E ratios show that stock pricing is at its highest since the dot-com bubble in 2000. Investors are seeking alternatives among assets.
Three risks the markets are watching
In addition to the flight to gold, there are three specific catalysts driving investor unease this week.
Tariff conflict between the U.S., Canada, and China
President Trump threatened to impose a 100% tariff on Canada if the country enters into a free trade agreement with China. Canada's Prime Minister Mark Carney immediately dismissed the threat, stating that there are no plans for a free trade agreement with China.
“Under the free trade agreement with the U.S. and Mexico, we have committed not to negotiate free trade agreements with non-market economies without prior notice,” said Carney. “We have no intention of doing so with China or other non-market economies.”
What Canada actually did was enter into a limited agreement in response to Chinese countermeasures. In 2024, Canada imposed a 100% tariff on Chinese electric vehicles and 25% on steel and aluminum, similar to U.S. policy. China responded with a 100% tariff on Canadian canola oil and 25% on pork and seafood. Canada has now reduced the electric vehicle tariff to 6.1% against an annual cap of 49,000 vehicles—about 3% of total car sales in Canada.
The problem is that Trump called this “one of the worst deals in history” and continued the pressure throughout the weekend. Treasury Secretary Scott Bessent said on ABC: “We cannot let Canada become an opening where the Chinese can flood in with their cheap goods into the USA.”
Trump also mocked Canada on social media, where he posted: “China is completely taking over what was once Great Canada. Sad to see. I just hope they leave hockey alone!” Markets fear a possible coordinated response from Canada and China on Monday.
Threat of yen intervention
The yen strengthened by 0.7% to 154.58 per dollar. Japan's Prime Minister Sanae Takaichi warned against measures against “abnormal movements,” and reports suggest that the Federal Reserve Bank of New York has contacted financial institutions about yen exchange rates. Markets interpret this as a signal that the U.S. may assist Japan with intervention in the currency market.
Matt Maley, chief strategist at Miller Tabak, told Bloomberg that most attempts to support the yen will only raise long-term interest rates, putting Japanese authorities in a difficult position with no clear solution.
The yen is the main currency for carry trades. Actual intervention could trigger investors needing to unwind yen carry positions, increasing volatility in risky assets.
Increasing chance of U.S. shutdown
The budget agreement expiring on January 31 has become an issue again. Kalshi prediction markets show that the probability of a shutdown has increased to 78.5%. Senate Democratic leader Chuck Schumer announced that Democrats will oppose the budget for the Department of Homeland Security after two civilians were shot and killed by immigration authorities in Minnesota.
Six of twelve annual budget proposals have been signed into law, but Republicans need support from Democrats to pass the last six before Friday's deadline. Senator Patty Murray, the top Democrat on the appropriations committee who has been working to secure support for the budget, turned and said, “federal agents cannot kill people in open streets and face zero consequences.”
In contrast to October's 43-day shutdown, some departments have already secured full funding for the year—including justice, industry, domestic affairs, and agriculture—so a total shutdown is unlikely. But other public functions will be affected, and the Senate is not expected to return until Tuesday due to a snowstorm.
Key events this week and consequences
The Fed's FOMC decision is set for January 29. An unchanged rate is expected, but Trump continues to push for cuts. His announcement that he will soon appoint Powell's successor adds another layer of uncertainty. The U.S. budget expires on January 31, and Japan has elections on February 8. Major tech companies like Microsoft and Tesla are also reporting quarterly results this week.
A significant increase in Bitcoin trading over the weekend suggests that investors have already gone into panic mode. Three headwinds have converged before U.S. markets opened, and Trump's tariff threats are unsettling the markets once again. If previous patterns hold, poor market response could lead to a TACO (Tariff Announcement Cancelled/Overruled), but volatility seems inevitable in the meantime.
Record-high prices for gold and silver send a clear signal: markets are seeking safety.