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China’s multi-billion dollar Silk Road Initiative will prompt Beijing to pull money out of Europe and the United States for infrastructure investments elsewhere, says Saxo's Steen Jakobsen. Here he explains why this could send interest rates and commodities higher and perhaps even push Europe into recession.

Jakobsen says China will spend its huge foreign reserves to fund the Silk Road project as well as cut rates domestically. He believes this will impact US treasuries, where Japan has already replaced China as the largest holder of US government debt.

With China no longer investing as heavily in Europe and the United States, the cost of capital is likely to increase. Jakobsen says this could trigger a recession in Europe and 'recession light' in the United States.

He also expects an increase in commodity prices as they outperform other assets. As a result Jakobsen has a new target price for gold. which he believes will increase as much as USD 200 to USD 1,425/50 per oz. He also thinks interest rates will rise, with US 10-year yields reaching 3.25% before the end of year.