Tariffs to Terabytes: Trade Tensions, Tech Deals & the Gold Surge

01.10.2025

In this episode of SB Talks, CEO Vincent O’Neill and CIO Nick Ryder, unpack the latest escalation in US-China trade tensions, focusing on China’s new rare earth export controls and their global ripple effects. They explore how these restrictions could impact industries from semiconductors to defense, and the strategic scramble for alternative suppliers.

The conversation shifts to OpenAI’s circular investment deals, with chipmakers like Nvidia and AMD raising questions about sustainability and bubble-like behaviour in the AI sector. Nick shares insights into the massive energy demands behind AI infrastructure and the uncertain path to profitability. The duo examines gold’s sharp rise, central bank buying, and the unusual coexistence of record highs in both equities and safe-haven assets.

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Transcript

Vincent: Welcome to SB Talks. Today is Tuesday, October 14th, and I sit down once again with our Chief Investment officer, Nick Ryder, welcome, Nick.

Nick: Thank you, Vinny.

Vincent: Now today Nick and I will be discussing the increased US Chinese trade hostilities in recent days, the continued circular trades from open AI as well as the upward march of gold. Welcome to all our listeners. Headlines have been appropriately dominated by the cease fire in Gaza in recent days, and we can only hope that holds, and President Trump obviously played a central role in that but, markets attention over the last few days of being caught by other activity from President Trump. In particular, a true social post that he put up at almost lunchtime on Friday, discussing Chinese hostility and specifically, concerns regarding rare earth battle policy.

Nick: Yeah. So, late last week, Chinese introduced new licensing regime for foreign entities around their rare earth minerals, including restrictions on the use of products produced using Chinese rare earth technology. That really will affect a lot of these rare earth permanent magnets, as well as high end logic and memory chips, a lot of military uses as well. So, they also introduced rules around exporting rare earth processing technology. So, it’s trying to stop other countries developing their own rare earth mining and processing capabilities, in China.

Vincent: I’ve been quite active in the world of trying to find in parts of their partnership deals with aid to other regions. Finding these sites where these rare earth resources are found?

Nick: Well, they mine and process about 90% of rare earth minerals. Apparently they’re quite toxic to process these minerals. Countries like Australia have resources of rare earth minerals, but we don’t have the processing technology that China does. There’s a bit of a scramble to try and develop alternative suppliers, but these things can take many years, and China’s obviously seen that it’s in a fairly strong position, to control the supply of rare earth minerals.

Vincent: And this is part of a broader theme, which you’ve talked about on the podcast many times, and written about, which is this sort of growing jostling for position around technol technology dominance for the decades ahead, and these rare earths are a key component going into that. Obviously, we’ve talked about chips and other things, but this is another one of the key components to dominate in this space.

Nick: Yeah, and to some extent the policies that they’ve introduced do mirror some of the controls that the US foreign direct product rule has placed on the export of high-end chips to China. We know, Nvidia and AMD are prevented from selling high-end chips to China. For sort of this potential military use and trying to stop China developing its own capabilities in this area.

Vincent: China’s sort of reciprocated in kind and using what leverage it has.

Nick: Yeah basically, and this potentially could affect electric vehicles, robotics, home appliances, and semiconductor manufacturing because a lot of these ultraviolet lithography machines used for semiconductors, do use rare earth magnets. And then of course also the defense industry. So, Trump obviously threatened 100% tariffs on Chinese imports from one November. Scott Besson said that this is China taking a bazooka to the rest of the world because these export controls don’t just apply to magnets and things going to the US, they apply to these products going to Europe. And so now they’re trying to coalesce the allies such as Europe, India, and countries in Asia to push back against this, to use their leverage. But these are obviously countries that the US has imposed tariffs on. So, it’s now, oh, we need our friends to push back against China. There was a sharp selloff in equities. It was the biggest decline, 2.7% decline for the S and P 500, the biggest decline since 10th of April, so we haven’t seen that for a while, markets have basically gone up in a straight line since then.

Vincent: April was the start of the Liberation Day tariffs and the market fallout from that. Since then, the markets got quite, I don’t want to say complacent, but assuming, glass half full on the tariff outlook, and this is probably only a moderate blip in that trend, but it definitely sees the US-China relationship as the one key cornerstone in this whole tariff arrangement that’s far from resolved.

Nick: Yeah well, you might remember at one point there were tariffs of over a hundred percent on Chinese and US goods going into the other country. That basically meant that Walmart was going to have empty shelves and there were anecdotes that the number of containers coming into the US from China through ports in on west coast had fallen dramatically. When there was that sort of trade truce in May, that really helped equity markets. Now those were 90-day trade truces that kept getting kind of pushed back, and so the current one was due to expire in in November. But the Chinese have complained that since their last trade truce the US has increased the list of, Chinese entities that are banned. The restricted entity list to include those entities that are 50% owned or more, they’ve introduced port entry fees on Chinese vessels, and they’ve sanctioned Chinese companies buying Iranian oil. So the US has, since that negotiation and that truce has, had subsequent things, which the Chinese have got upset about and used that as a sort of a pretext to introduce these export controls.

Vincent: They’re going to a much more aggressive stance and if this was all to fully play out as it currently sits, could be quite material on, or would be very material on global trade.

Nick: Well, that’s right. And it wouldn’t just affect trade between the US and China. It would affect global trade, so it’s quite a lot of downsides. But the Chinese are in quite a good position at the moment. We’ve got September trade data for China. Their exports rose 8.3% year on year. It’s the strongest this year, but that included a 27% decline in exports to the US. That’s the sixth month of a double-digit decline, but they’ve succeeded in finding new markets. They’ve been growing their exports to Europe, to other Asian countries, and to Vietnam, where that’s seen as a country that’s been rerouting products to the US. So, the Chinese are probably looking at that and feeling pretty good.

Vincent: Their negotiating position is better than it was six months ago.

Nick: Absolutely. I think the markets have rebounded. Trump put out a true social saying, don’t worry about China, we’ll all be fine. Scott Besson saying that there’s still prospects that Trump and President Xi will meet on the sidelines of the Apex Summit in South Korea at the end of this month. Apparently, there’s been a lot of dialogue between the US and China officials over the weekend, so it’s very much seen that this is a negotiating tactic.

Vincent: I was going to say that it’s like the continuous train now, the upfront rhetoric is as aggressive as humanly possible and then, that sets out your negotiating position. And hopefully we see something much more moderate and sensible since then or after that point. And that has largely played out up to now. But this really is the one key negotiation in all of this that was probably the most important at the very start and is still the big one unresolved.

Nick: Yeah. And if it doesn’t go well, there’s potentially substantial downside, given the use of these products in a wide range of industries.

Vincent: And a lot of big personalities and big politics involved in this negotiation as well. We’ve talked a lot about the AI trade this year. A lot of speculation in the media regarding is it an AI bubble? Is the investment levels that are going into the space overdone. We’re seeing some interesting trades and deals in more recent time involving open AI and sort of partner companies or suppliers, essentially making investments, which in turn have funded purchases of chips such as Nvidia or AMD or others. Tell us a little bit more about that and possibly why it has raised some questions.

Nick: In the last sort of few weeks, we’ve seen open AI do deals with Nvidia, where Nvidia would invest a hundred billion into open AI in return for OpenAI, buying a hundred billion of chips from Nvidia. It’s a bit of a red flag. It’s one of these circular deals or vendor finance deals that we did see a little bit during the .com bubble. Since then, they’ve also done a sort of similar deal with AMD, but AMD will give them 10% stake in the company as a way of potentially paying for the chip purchases. Yesterday, they did a deal with Broadcom, and you add up all of these, it’s apparently the equivalent of 26 gigawatts of computing power. The power requirement for is New York City’s summer electricity needs times two.

Vincent: So, repeat that last sentence, New York’s…

Nick: New York City’s peak summer electricity demand

Vincent: All the air conditioning.

Nick: Yeah, times two. That’s 26 gigawatts.

Vincent: This is a really important point because this is where the costs are going to, right? They’re trying to build out computer power. We’re trying to build out all the infrastructure required to meet this potential surge in demand for AI usage. The question mark is, is the user case going to be there and what’s the return on the investment?

Nick: Absolutely. So,  26 gigawatts, apparently it costs 50 to 60 billion for a one gigawatt data center. So, we’re talking something in the order of one and a half trillion dollars of OpenAI’s investment in these data centers over the next sort of eight years. And where are they going to get the money for that? I mean, not all of it is going to be provided by the chip suppliers. It’s a huge capital investment, huge energy demands on the back of that. And it’s not clear whether they’re going to monetise it. They do have 800 million weekly users. Only 2% of those are paying, their current run rate of revenue is $13 billion a year. It costs them more than that in terms of their computing power, so they’re losing money. It’s not clear where the demand is.

Apparently, the latest survey I’ve seen says that 70% of ChatGPT users are using it for personal use and only 30% for business. There’s been reports that a lot of businesses have tried to embed ChatGPT or AI in their business systems but have yet to really find the sort of productivity boost that they had hoped. That’s why there’s a lot of big question marks around it. Open AI was recently valued at $500 billion, making it the most valuable private company in the world. There’s a lot of question marks correct as to whether this is a bubble. Even open AI’s own Sam Altman has conceded that there may be some bubble-like element in there, but he says, we just have to build it.

Vincent: The demand is there, and the money is there. There’s a lot of people backing these huge investments, without a clear line to what the return on the investment will be. But some question marks over whether the full build out actually happens to the degree that’s already slated at this stage as well.

Nick: Well, that’s right. I mean, these are just plans at the moment, but they’ve got some eye watering numbers.

Vincent: Does that worry you as an investor?

Nick: I mean, it does, but the thing is OpenAI is a private company, so it’s not really going to have a direct impact. I mean, the impact would be on the big chip companies like Nvidia.

Vincent: Yeah, so NVIDIA’s probably the biggest, well, without a doubt, is the biggest stock market beneficiary of this projected build and its valuation. The question marks over how much of this future demand acceleration, is baked into its price, and if it doesn’t materialise, what impact that’ll have on the price, but also has a knock-on impact in certainly companies like Microsoft or Alphabet, where there are significant spends, but also significant expectations of return on those investments in their price.

Nick: Yeah, I mean I think it’s slightly different to maybe the .com boom in the sense that these companies do have real businesses, they do have earnings. They’re trading at sort of roughly 30 times earnings, which is not outrageous.

Vincent: Very different to our pets.com and valuations based on no revenue.

Nick: That’s right. Or MCI WorldCom building fiber networks on the basis that traffic would be there in the future. I think there’s definitely some degree of concern, which I think is warranted. The problem with bubbles is you can say it’s in a bubble and then it can continue for another two years and another 30% price appreciation before it bursts, it’s very hard to time these things as well.

Vincent: But as you said, the big exposure is probably your Nvidia in the global equities, and one to watch closely. Anything else catching your attention? Gold continues to trump ahead.

Nick: So gold up 56%, 57% year to date, up 22% in the past two months. It does look a little bit like a momentum trade, FOMO buying. As I did write in my recent quarterly, it’s unusual. Gold is a safe haven asset. For gold to be a record price, and equity markets to be at record highs, these two things are sending you different signals about things. Though I do think there is an element of speculative buying in gold. Sure, there’s some central bank buying, trying to diversify reserves away from US dollar assets and things like that. So, there is some sort of long-term trends there, but a lot of it does appear to be ETF buying. Gold isn’t particularly liquid, so it doesn’t require a lot of buying to kind of send the price heading north. I think that’s something to watch.

Silver is at a new all-time high. Often people look at silver as a sort of poor cousin of gold, and copper is also approaching record highs. These are interesting things. I mean, we do have exposure to some of these price trends through some of our trend following hedge funds that we invest in. So, we’re not completely unexposed if you like. I guess the other thing I’m watching is, we’re day 13 of the US government shut down. Where we sit today, it doesn’t look like either side is really prepared to give anything on. There doesn’t appear to be any sort of substantial negotiations.

Vincent: What’s the immediate impact on the government’s operations there?

Nick: In terms of some things like data, we’re not getting data, although we’re told now that the CPI numbers for September, which were due to come out this week, will be published on the 24th. They’re needed because a lot of social security benefits, get what’s called a cost of living adjustment based off the September CPI every year. It’s important for social security that those numbers are produced. Those will be reported on, at least that gives the Fed something to consider when they meet at the end of the month. But beyond that it’s unclear. I think the military, Trump’s found a way to pay them, but yeah, it just appears to be dragging on at the moment and no real end in sight.

Vincent: Excellent overview and summary as always, Nick. Thank you once again, and thank you to all our listeners.

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