Last week, renewed trade conflicts between China and the U.S. over rare earth elements escalated sharply, triggering significant market volatility. However, following a cooling-off period over the weekend, both sides adopted a softer tone, with U.S. stock futures rebounding on Monday—a clear demonstration of the recurring "TACO" pattern.
This week, we dive deep into China's rare earth strategy and its potential impact on market direction. Additionally, we provide a comprehensive analysis of mid-to-long-term investment trends, including the six key investment themes for Q4, the factors driving gold's record high, and whether the U.S. dollar's hegemony is truly starting to crumble.
China Escalates Trade War with Rare Earth Curbs
Following U.S. restrictions, China escalated the trade war on October 10 by imposing new export controls on rare earth elements. This move tightens scrutiny on foreign semiconductor and defense companies using Chinese materials. President Trump responded by canceling a planned meeting with Xi Jinping and threatening an additional 100% tariff. However, market panic eased on October 13 after both sides softened their rhetoric, with China clarifying the controls are not a ban and Trump stating, "Don’t worry about China, it will all be fine!"
Gold Hits Another Record High
Gold futures peaked above $4,080/oz on October 13, extending an eight-week winning streak driven by a surge in safe-haven demand. Escalating global instability, including the French government collapse and renewed U.S.-China friction, fueled the rally. The surge is also supported by the Federal Reserve's September rate cut, which kicked off a new easing cycle. Crucially, central bank gold reserves now exceed foreign holdings of U.S. Treasuries, indicating a structural shift as gold displaces the dollar as a preferred reserve asset.
3 Key Races & Q4 Investment Theme
The current investment landscape is defined by three Trump policy-driven competitive arenas: the Productivity Race (AI/energy), the Hegemony Race (defense/minerals), and the Currency Race (gold/stablecoins). The market's record highs in September, following the Fed's rate cut, validate this framework. Thematic investments in AI, nuclear power (streamlined approval processes), defense, and gold are seeing strong returns. Investors are focusing on these policy-accelerated sectors, but must balance this momentum against underlying fundamental risks, especially in capital-intensive sectors like nuclear energy.
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