Is AI capable of causing a drop in the price of gold
Commodities have made headlines in the first half of 2024, with coffee, cocoa, and orange juice hitting unprecedented price peaks. Among them, gold, renowned as the world’s largest and most identifiable commodity, has not only set record prices but also maintained them, in stark contrast to many others experiencing volatility. Although gold has traded relatively flat recently, this follows significant 19.45% gains over the past year and a 12.93% increase year-to-date, stabilizing its current price at $2329.5.
The surge in gold’s value can be attributed to several factors: economic uncertainty due to high inflation and persistent interest rates, substantial central bank purchases worldwide, and geopolitical tensions. However, an additional catalyst for gold’s ascent to new highs may be the ongoing boom in artificial intelligence (AI).
Traditionally valued primarily for its cultural significance, gold has found renewed industrial utility in the electronics-driven era. Its corrosion resistance, conductivity, and malleability have secured its place in applications ranging from connector pins and circuit boards to medical devices and semiconductors. Metals Focus, a precious metals consultancy, predicted last October that the popularity of AI technology would significantly drive up gold prices, a forecast that has materialized with gold surpassing $2300 from $1800 just months ago.
The role of AI-powered semiconductors in this rally remains somewhat ambiguous, yet the performance of tech giants like Nvidia hints at substantial industrial demand. While concerns about geopolitical tensions, such as the Russia-China alliance, ring hollow for many, the link between AI advancement and gold prices poses systemic risks for commodity investors. Société Générale’s Albert Edwards, noted for predicting the Dot-com bubble, warned of a similar bubble in the AI sector, with Nvidia’s market dominance exemplifying this trend.
Despite the potential for AI to foster artificial general intelligence (AGI), uncertainties regarding intellectual property and the technology’s reliability persist. Google’s missteps, like the glue-in-pizza incident, underscore challenges in training advanced AI models, complicating the technology’s trajectory. The massive success of Nvidia, now the world’s largest company by market cap at over $3.3 trillion, further fuels concerns about AI’s sustainability as a market force.
Looking ahead, the bursting of the AI bubble could potentially deflate gold prices, albeit temporarily, given gold’s historical role as a safe haven during economic turbulence. Whether AI firms can justify current valuations or if market corrections will occur remains uncertain, leaving investors to navigate the delicate balance between technological optimism and market realities.
