Gold and Korea break through 5,000

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One round number. Two very different reasons.

This week both gold and Korean shares have broken through key barriers - $5,000 an ounce for the precious metal, 5,000 for the Kospi index.

It’s the same level but that’s where the similarity ends, because the rise of one is a sign of investor nervousness - gold is the ultimate safe haven - while the other is a symptom of persistent bullishness - Korea is seen as a backdoor play on the AI-fuelled tech boom.

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Still shining

Gold hit a new all-time high of $5,093 this week as investors sought out safety after a week of geo-political uncertainty. The appearance of Donald Trump at the Davos economic summit provided a visual focus for the year’s simmering tensions - from Venezuela, to Iran and Greenland.

Once again, though, it was a week in which the President walked investors to the edge of the abyss and then pulled them back again. Having started the week with the threat of punitive tariffs on a handful of countries, including the UK, by Wednesday he had changed his mind and markets were back on the front foot.

The belief that the President’s policy decisions are ultimately shaped by how the market responds to them was confirmed by an apparent U-turn on tariffs by mid-week. Investors are learning not to over-react to a predictably unpredictable President.

• Read: Where next for gold?
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The new Japan?

Meanwhile, the hot equity investment of 2025 has turned out to be a winner so far in 2026 too. Korean shares soared last year for two reasons. First, a third of the Kospi index is accounted for by two shares - Samsung Electronics and SK hynix. Both are beneficiaries of the insatiable demand for semiconductors as the AI boom continues apace. Samsung has trebled over 12 months, and SK is up four-fold.

Second, Korea has followed in the footsteps of Japan with a series of far-reaching corporate governance reforms that have broken the stranglehold of previously dominant family-run conglomerates, known as chaebols, and improved the outlook for outside shareholders, including through more generous dividends.

This has closed a so-called Korean discount which had left the Asian market trailing in terms of valuation. The catch-up for Korean shares has seen the Kospi index rise from 2,000 to 5,000 in five years. It is up by 20% this year alone.

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All eyes on the real Japan

Equity investors may have ended the week on the front foot, but there is plenty for them to worry about - and this week much of the anxiety has focused on Japan.

With a new government calling a snap election to cement the position of its first female Prime Minister, Sanae Takaichi, the usually calm Japanese financial markets have been unusually turbulent.

Top of the list of worries is the bond market, where long-dated issues have recently yielded more than 4%, having offered close to zero for years during Japan’s long battle with deflation. Investor concerns are focused on the country’s sky-high debts (as much as 250% of GDP) and the government’s stated desire to keep stimulating the economy and to cut taxes.

That has, in turn, had an impact on the value of the yen which last week sank close to the 160 yen to the dollar level at which both the US and Japanese governments start to worry about the exchange rate. This week, a big rally in the yen to 154 to the dollar was the clearest indication yet that the authorities have stepped into the market to prop up the currency.

The consequence of that has been a sharp retreat for the high-flying Japanese equity market. The Nikkei 225 fell by 1.8% on Monday in response to the rise in the yen, which makes Japanese exports less competitive.

Fed in focus

That’s the market backdrop, but this week’s main focus is likely to be on Washington, where the Federal Reserve meets for its first rate-setting decision of the year. With inflation stickily above target at 2.7%, despite a slowing jobs market, the expectation is that interest rates will be left unchanged on Wednesday.

That will be the first meeting in four at which the Fed has chosen not to cut rates, a decision that will likely further inflame tensions between the central bank and the White House, which wants the Fed to go further with lowering the cost of borrowing.

Assuming a more compliant Fed chair is announced shortly, the markets are now pricing in two more quarter point rate cuts, following the three between September and December last year.

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