This week in the markets: Gold and Korean shares soar to new record levels; Japanese shares slide after central bank intervention boosts the yen; and the US braces for the first interest-rate decision of the year.

Both gold and Korean shares burst through 5,000 this week. The same round number but for very different reasons. The precious metal is the ultimate risk-off safe haven - and investors have found plenty to worry about so far this year. Korean shares, meanwhile, have soared on the back of continuing enthusiasm for cheaper ways into the AI tech stock theme - the ultimate risk-on trade.

First gold. The price of the precious metal passed $5,000 an ounce for the first time as investors sought out a port in the storm amid heightened geo-political tensions and worries about sky high government debt levels.

The appearance of Donald Trump at the Davos economic summit last week provided a visual focus for some of the year’s simmering geo-political rows - from Venezuela, to Iran and Greenland. Another on-off tariff row created the link between geo-strategic differences and the global economy and markets. Even by the standards of the past year, the US’s threat to slap punitive tariffs on a range of countries, including the UK, was short-lived. Announced on Saturday, it was gone by Wednesday.

After a 2% fall in the S&P 500 last Tuesday, the apparent capitulation by the White House, had some observers revisiting the theory that Donald Trump’s policy platform is ultimately driven by movements in the financial markets. Investors believe that he has a tendency to backtrack if the market reaction to any measure is too negative.

With government bonds - the traditional safe haven - falling out of favour as concerns mount about the high levels of borrowing around the world - most notably in Japan under a new stimulus-focused government - gold has become the go-to for risk averse investors.

The price of the precious metal rose to a high of $5,093 an ounce at the start of this week, and has rallied by 17% since the start of the year. Last week was the best for gold since 2008, during the financial crisis. Over the past year gold has trebled in value, boosted by a falling dollar, central bank buying and a surge of speculative interest from retail investors.

The surge in the gold price is an echo of a similar parabolic rise in the metal’s price in 1979. Coincidentally - or not - that was the year of the Islamic revolution in Iran when the overthrow of the US-backed Shah triggered unrest in the Middle East and a second oil price surge in five years.

Apart from geo-politics, a second driver of interest in gold has been a surge in Japanese bond yields on the back of heightened concerns about government debts in one of the world’s most indebted countries. The ratio of Japan’s public sector debts to GDP has been as high as 250% in recent years as the country spent heavily to counter decades of post-boom deflationary stagnation.

That, and a new government determined to keep stimulating the economy and to raise defence spending and cut taxes ahead of a snap election, has forced long-dated government bond yields from close to zero to over 4% over the past five years. With Japanese bond prices falling (as yields rise), gold has been viewed as an attractive alternative.

Japan has also been on investors’ radars this week thanks to a surge in the value of the yen, which has jumped to a two-month high against the dollar on speculation that the Japanese authorities have intervened to boost the value of the currency. The dollar bought less than 154 yen at one point compared with 159 on Friday, when it was close to the 160 level at which both the US and Japan are thought to be uncomfortable with the exchange rate.

The yen is an important influence on Japanese shares because of the importance of exports to the Japanese economy. A rising yen makes those exports less competitive, so it was unsurprising that the Nikkei 225, one of the world’s strongest markets last year, gave back 1.7% at the start of the week.

Which brings us back to Korean shares, another Asian stock market that has defied the sceptics in recent months, rising by 20% just since the start of the year and rising from 2,000 five years ago to more than 5,000 last week.

Korean shares have surged on the back of appetite for semiconductor stocks like Samsung Electronics and SK Hynix, both beneficiaries of the AI boom. These two represent a third of the Korean index. Samsung has tripled over the past 12 months while SK Hynix has risen four-fold over the same period.

But tech is not the only driver. Korea has also followed in the footsteps of Japan in driving through a series of corporate governance reforms designed to make investing more attractive and to eliminate a so-called Korea discount. Last June, a new President, Lee Jae Myung, came to power promising to tackle the poor corporate governance that has suppressed valuations for the country’s shares relative to other markets.

As in Japan, companies are now legally bound to consider the interests of all shareholders, rather than favouring the family-run chaebol which have always dominated the economy. The government has also used tax incentives to encourage higher dividend payouts.

Back in the US, the Davos drama saw shares briefly retreat, but by the end of the week markets were back on the front foot. Equity markets continue to broaden, with the equal-weighted S&P 500 index closing the valuation gap on the Magnificent Seven-driven main index. But that has so far not happened at the expense of the market leaders, which have traded in a broadly sideways pattern for the past six months.

Earnings season is now well under way, with a healthy 80% or so of companies reporting so far having beaten expectations. To date there has not been the uptick in forecasts that has characterised recent reporting rounds. Sentiment is moderating, but so far earnings are supporting valuations at levels which look high but not excessive.

That is the backdrop to this week’s economic and policy announcements which will be dominated by the Fed’s first interest-rate decision of the year on Wednesday. Despite ongoing pressure from the White House on the Fed to lower borrowing costs, including the launch of a criminal investigation into the central bank’s chair, Jerome Powell, the Fed is expected to leave rates unchanged this week.

This would be the first meeting out of the last four at which the Fed has not lowered rates. They were cut from 3.75% to 3.5% in December, taking them to a three-year low. US inflation remains above target at 2.7% but the labour market is slowing. As a result, although no change is forecast this month, markets expect two more cuts later this year.