AI bubble’s burst could ignite gold's next bull leg as investors search for value - Fred Hickey

In an interview with Kitco News, Fred Hickey, founder of The High-Tech Strategist investment newsletter, said the extraordinary enthusiasm surrounding artificial intelligence has diverted massive amounts of capital away from precious metals. However, he argued that the same forces that inflated the AI boom are beginning to crack, setting the stage for renewed interest in precious metals.

Hickey said that he is particularly bullish on gold mining equities, arguing that they remain historically inexpensive despite record profit margins.

After significantly reducing his mining exposure near January's peak, he said he has recently begun rebuilding positions as sentiment toward the sector improves. He added that even during the sharp correction has has maintained a core holding of physical gold.

Looking at the broader market, Hickey pointed out that nearly every major measure of valuation now exceeds the extremes reached during the dot-com mania. He noted that AI-related companies now account for almost half of the S&P 500's market capitalization despite contributing only a fraction of U.S. economic output, creating what he believes is a dangerous disconnect between financial markets and the real economy.

"We're in a gigantic bubble in the stock market," Hickey said.

He added that the current environment bears striking similarities to the late 1990s, when investors abandoned gold in favor of high-flying technology stocks. The difference, however, is that gold is not emerging from a two-decade bear market as it was in 2000.

"Gold and the miners are being held back again by all of this AI movement," he said. "But we're still in a gold bull market."

Hickey explained that today's AI spending frenzy has become increasingly detached from economic reality. While hyperscale technology companies continue investing hundreds of billions of dollars in new data centers, he said the expected productivity gains have yet to materialize. At the same time, he said much of the sector's earnings growth has been artificially boosted by accounting gains, deferred infrastructure costs, and circular financing arrangements between semiconductor suppliers and cloud providers rather than sustainable end-user demand.

He added that the economics of generative AI are deteriorating rapidly as low-cost open-source models from China pressure pricing across the industry.

"There's a huge spend without the return on investment," Hickey said, adding that the pricing expectations supporting many large language model providers are beginning to collapse. "It's a giant bubble based upon a lot of falsehoods."

Although Hickey acknowledged that speculative bubbles can persist longer than many investors expect, he said signs of fatigue are becoming increasingly evident. He pointed to weakening performance among the ‘Magnificent Seven’ stocks, rising debt issuance by major technology companies, slowing semiconductor shares, and growing difficulty financing AI infrastructure as evidence that investor enthusiasm is beginning to fade.

While capital has flowed aggressively into AI, Hickey said the opposite has occurred in gold.

Following January's record rally to around $5,600 an ounce, gold has corrected sharply, briefly falling below $4,000 before stabilizing. However, he believes the correction has largely run its course as speculative positioning has been flushed from the market.

Attempts to push prices below the $4,000 level have repeatedly failed, which Hickey attributes to renewed physical buying from Asia, and particularly from China. At the same time, he noted that ETF outflows have largely stopped after heavy liquidation during the spring, while futures positioning has fallen to multi-year lows, indicating speculative excess has been removed from the market.

"What we're seeing now is a market that looks like it may be bottoming," he said.

Although prices can continue to consolidate, Hickey believes the uptrend is far from over. He explained that unlike previous bull market peaks, this year's rally never displayed the speculative characteristics typically associated with a major top.

He noted that retail investors never aggressively embraced gold, junior mining shares failed to experience the kind of buying frenzy seen during previous cycles, and ETF inflows remained surprisingly muted throughout most of the bull market.

Instead, the primary driver has remained central bank demand.

Hickey pointed to continued official-sector purchases exceeding 1,000 tonnes annually and the ongoing global de-dollarization trend as structural forces that remain firmly intact despite gold's recent correction. He argued that growing concerns over U.S. fiscal deficits, rising government debt, geopolitical tensions, and declining confidence in the U.S. dollar continue to support long-term demand for bullion.

"The bigger drivers were the lack of confidence in the U.S., de-dollarization, central bank buying, and all of those things are with us today," he said. "That's why we didn't go below $4,000, and that's why we're going to go up again."

Looking ahead, Hickey believes gold's next major advance could coincide with the unwinding of AI exuberance.

He expects investors eventually to rotate away from richly valued technology shares toward undervalued hard assets, much as they did following the collapse of the dot-com bubble two decades ago.

"I think they will come because of the disillusion with tech," he said. "They'll have lost so much money, they'll be looking for alternatives. You'll have that final push."