In early 1848, a New Jersey-born carpenter made an astonishing discovery. It was a discovery that would completely change the trajectory of his life… the lives of hundreds of thousands of others…
And eventually, the lives of millions more.
Because what started out as an ordinary day, checking on the performance of his hydro-powered sawmill along the American River in the Sierra Nevada foothills, would soon become one of legend.
You see, on that Monday morning, January 24th, James Marshall noticed some odd rocks had settled in his mill’s tailrace. Rocks that were unlike any he’d seen there before. They were yellow in color and completely malleable.
Forget the sawmill…
Marshall knew that what he just came across was far bigger than any timber cutting business.
“Boys, I believe I’ve found a gold mine!”
And find a goldmine he did. In fact, that sawmill was sitting atop one of the largest, yet to be discovered goldfields in North America; the areas surrounding Coloma, CA.
Now, as word of the discovery spread, hundreds of thousands of people from all over the world flooded into the area, looking for their chance at striking it rich. The California gold rush was on.
Over the course of the next few years, more than 12 million ounces were pulled from California’s gold-rich ground (well over $30 billion in today’s money). Of course, with that much gold being found, some people (the lucky ones) did indeed strike it rich.
But, as you know, the biggest fortunes were not made by the gold miners themselves, but by entrepreneurs selling various goods and services to the miners. Picks, shovels, food, news, lodging, “companionship” … overalls.
In fact, of those who got truly rich, few of them ever put shovel to dirt. Levi Strauss, for example, died in 1902 with a net worth approaching $1 billion in today’s money. He didn’t mine a single ounce of gold… but made durable overalls that miners couldn’t live without.
In business, we call this the “sell shovel’s principle;” servicing booming market participants with necessities, rather than servicing the market directly.
And yes, this business principle can be applied to the new gold rush in artificial intelligence (AI).
However, the “sell shovels principle”, when applied to AI, has one ironic twist…
And it’s a twist that may be at least partially responsible for the remarkable rise in the price of gold.
Now, before we explain the twist, and you may already know what it is…
Have a look at this chart:
This is the gold spot chart and the Nvidia stock chart over the past five years, starting in 2019.
Remarkably, the charts visually line up quite well. Especially beginning in 2022, when AI was just becoming all the rage. Perhaps not so coincidentally, 2022 was the same year OpenAi launched ChatGPT, taking AI mainstream.
Of course, there are macro-economic reasons why gold has been on fire, but why would a hot tech stock like NVDA and a seemingly unrelated commodity’s charts track so closely?
Because, ironically, gold is among the new “shovels” in the AI boom, and it’s a “must have” in order to produce digital wealth.
Get this: according to research published this Oct. 28, from S&S Insider, the AI chip market was valued at $61.45 billion last year, and is expected to reach $621.15 billion by 2032. That’s more than a 10-X expansion of market value.[1]
And inside all those AI chips?
You guessed it, there’s gold in them there chips!
You see, just as picks and shovels were a necessity for gold miners in 1849, gold is a necessity for AI chip makers today. Why? Because gold has unique conductive properties that are absolutely necessary for the efficiency of semiconductors.
Simply put, gold is superior to most other materials at moving electricity, and because of the insane computing power of AI chips, using gold in them is a must.
Or even simpler… the market needs AI chips, and AI chips need gold.
Now, clearly, we’re not saying the price of gold will increase 10X by 2032 (mirroring the expected growth in the AI chip market), that’s highly unlikely, but we are saying demand for industrial gold could very well rise.
In fact, in Q1 of this year, demand for industrial gold rose 10%.[2]
Now, with demand for AI chips expected to rise at a CAGR of 29.4% through 2032, it stands to reason that industrial gold demand could follow; although unlikely at a near 30% CAGR.
So, will the gold bull market continue (as of this writing, it’s down 8% from ATH)?
Are there still AI or gold stocks out there that offer solid upside potential?
Well, give this a try…
Go to SentimenTrader’s free simple back-test calculator (HERE), and type GOLDLNPM where it asks for a ticker symbol…
Or enter the ticker for any gold stocks.
Then click “Run and Send Backtest Results.”
Once you do that, try inputting NVDA …
Or any other AI stocks.
And enjoy!
[1] AI Chip Market Expected to Reach USD 621.15 Billion by (globenewswire.com)