Gold Is at a Record High. Why It Is Set to Rise Even More.

Is gold’s strength a flash in the pan or a golden opportunity?

The yellow metal just completed its best two-quarter stretch in eight years on its way to a record high of $2,319 per ounce today.

That performance comes as a bit of a surprise at first blush. After all, gold prices typically rise when interest rates decrease and fall when rates swing higher. Yet recent economic data suggest the Federal Reserve will have to keep interest rates elevated for longer than previously thought to tame inflation.

There has been some good news on inflation. Last Friday, for instance, we learned that the core personal consumption expenditures (PCE) index, which is the Fed’s preferred inflation measure, rose just 2.8% year over year and 0.3% month over month, as expected , in February.

Shorter-term trends paint a more challenging picture for the Fed, however, given that the three-month core PCE trend reflects 3.5% annual growth compared with 2.5% in late 2023.

“The relevant news is that recent inflation data are rising briskly,” writes Michael Lewis, who heads Free Market Inc., an economic consulting firm. This translates into higher rates for longer as the odds of a June rate cut have fallen to 58% from 73% a month ago. Mary Daly, the chief of the San Francisco Federal Reserve, said Tuesday there is “ really no urgency ” to cut rates. Fed Chairman Jerome Powell echoed that sentiment today.

Monday’s ISM manufacturing index report reinforces that narrative . In March, the index delivered its strongest growth since September 2022, rising to 50.3, easily exceeding the expectation of 48.4.

Not surprisingly, on Monday, stocks fell as the yield on the 10-year bond surged to 4.32%. Tuesday we saw more of the same with key stock indexes falling and the 10-year yield rising as high as 4.4% , its highest level in 2024 . Higher rates have been pressuring stocks, bonds, and cryptocurrencies .

Gold is powering higher, however. March 22 is the last day that gold prices fell. The price of gold has risen 9.7% this year while the yield on the 10-year has gained 10.4%.

“Gold is the near-zero yielder that is then showing record demand, despite a world where high nominal yields and carry are still dominant,” wrote Deutsche Bank macro strategist Alan Ruskin in a newsletter last week. “If gold prices won’t go down in an inflated nominal yield world, they can surely go up as the G-10 yield plateau gives way, and yields likely start their descent in” the second half of this year, Ruskin continued.

So what explains gold’s recent rise amid higher rates? Strong demand from China is one factor . The People’s Bank of China went on a buying spree last year, acquiring a net 225 metric tons of gold—the most among all central banks and the country’s biggest expansion of gold reserves since 1977.

With China’s central bank reserves at a record high, its consumers are also actively buying the precious metal, partly due to concerns about their economy and stock market. Among Chinese investors, demand for gold-related ETFs is “booming,” according to The Wall Street Journal, and Chinese imports of gold have surged 51% in the first two months of 2024 compared with the same period last year.

Gold’s more volatile counterpart, silver, surged to a two-year high today, gaining 5% to $27.22 per ounce. Unlike gold, which is at a record high, silver would need to rise more than 80% to reach its 2011 high of near $50.

“The formerly nonchalant silver finally appears ready to join gold’s advance,” John Roque, a technical analyst at 22V Research, wrote in a note, Barron’s reported . “$30 as the first target and then, presuming a breakout, $40 as the second target.” Silver prices are up 12.5% this year.

The entire commodities complex is showing relative strength as the Bloomberg Commodity Index is at its highest level since December . Crude oil is 20.6% higher this year.

Safe-haven demand for gold may increase given fast-rising geopolitical tensions in the Middle East. Moreover, concerns about the national debt are growing louder and more pointed from notable figures across the political spectrum. Unfortunately, there is no indication that politicians will quit pandering to short-term considerations (meaning votes) by making tough choices. As such, expect them to keep playing Kick the Can until one of them slices their foot.

Given all of this, the outlook for gold remains bright . On March 29, Barron’s cited an analysis by economist Charles Gave, founder of Gavekal Research. “The S&P 500 is on the verge of becoming overvalued versus the stock of capital, while gold is almost undervalued against my measure of retained earnings.”

Gave added, “Gold is ‘undervalued’ against the S&P 500 by a hefty -52% and -13% versus its own long-term trend. In contrast, the S&P 500 stands 33% above its own long-term trend level.” Recommending that investors hedge equity exposure with at least 20% of their portfolio in gold, Gave concluded, “At this point my preference based on the relative position of the two reserve assets is to favour gold, followed by equities.”

For decades, the world’s computing power has quietly expanded at an astonishing pace.

From the first transistor developed at Bell Labs in 1947 to modern processors containing billions and even trillions of transistors, each generation of technology has been faster, smaller and more powerful than the last.

But according to quantum physicist and technology entrepreneur David Reilly, that era of effortless progress is beginning to slow.

Reilly, CEO of Sydney-based Emergence Quantum and Professor of Physics at the University of Sydney, says the computing infrastructure underpinning modern economies is approaching fundamental physical limits.

And that could have enormous implications for finance, artificial intelligence and global investment.

Speaking at an industry event organised by Kanebridge International, Reilly said many critical parts of modern society depend on computing and the infrastructure used to process information.

The slowdown behind the tech boom

For years, the technology industry relied on a steady improvement known as Moore’s Law, where the number of transistors on a chip doubled roughly every two years.

More transistors meant more computing power, allowing faster software, smarter devices and ever-larger data systems.

Today, however, those gains are slowing.

“It feels to me very innate that I’m going to just find that next year there’s going to be another breakthrough,” Reilly said.

“But if you look at the data…there’s a slowing down, a roll off in performance that started some 10, 20 years ago.”

Rather than making chips dramatically faster, manufacturers are now largely increasing computing capacity by packing more transistors onto each processor.

The approach works, but it comes with growing complexity, higher costs and increasing energy demands.

The brute-force race for AI

That challenge is already visible in the massive data centres being built to support artificial intelligence.

In the race to dominate AI, companies are constructing vast computing facilities that consume huge amounts of electricity and water. Reilly described this expansion as a “brute force” approach driven by the global competition to develop advanced AI systems.

Yet the demand for computing power continues to accelerate.

Artificial intelligence, advanced robotics, healthcare research, pharmaceuticals and cybersecurity all require far more processing capacity than today’s systems can easily deliver.

The question now facing the technology sector is whether traditional computing can keep up.

Enter quantum computing

That is where quantum computing enters the conversation.

Unlike conventional computers, which process information using binary switches that represent ones and zeros, quantum computers exploit the unusual behaviour of particles at the atomic scale.

Reilly describes them as a fundamentally different type of machine.

“So a quantum computer is a wave computer,” he said.

Instead of processing information through simple on-off switches, quantum systems can use wave-like properties of particles to process many possible outcomes simultaneously.

Those waves can interact in complex ways, reinforcing correct solutions while cancelling out incorrect ones. In theory, this allows quantum systems to tackle certain types of problems dramatically faster than classical computers.

What it could mean for finance

The concept may sound abstract, but its potential applications are significant.

Quantum computers are expected to transform areas such as materials science, chemical modelling and pharmaceutical development.

They could also help solve complex optimisation problems in logistics, finance and risk management.

For financial institutions in particular, the technology could offer new tools for detecting fraud, analysing market behaviour and optimising portfolios.

But the shift will not happen overnight.

“One message to take away is that quantum is not going to suddenly solve all of your problems,” Reilly said.

Instead, he said quantum systems will likely complement existing computing technologies as part of a broader and more diverse computing ecosystem.

Why data centres may soon “go cold”

One key change already emerging is how computing systems are physically designed.

Many next-generation technologies, including quantum processors, operate far more efficiently at extremely low temperatures. As a result, future data centres may rely heavily on cryogenic cooling systems to manage heat and energy consumption.

Reilly believes that the shift will gradually reshape the computing industry.

“Over the next five years, you’re going to see data centres go cold,” he said.

“And as that happens, they almost drag with them new compute paradigms.”

Emergence Quantum, the company he co-founded, is focused on developing technologies to support that transition, including cryogenic electronics and integrated hardware platforms designed for quantum computing and energy-efficient systems.

A new technological era

For investors and businesses, the technology remains in its early stages. But the scale of global interest is growing rapidly.

Governments, research institutions and technology companies are investing heavily in quantum research, betting it could become a foundational technology for the next generation of computing.

For Reilly, the moment feels similar to earlier technological turning points.

In the 19th century, new discoveries in thermodynamics helped drive the development of steam engines and the Industrial Revolution. In the 20th century, advances in electromagnetism led to radio, television and eventually the internet.

Quantum physics, he suggests, could represent the next chapter in that story.

“Today we have, as a society, in our hands new physics that we’re just beginning to figure out what to do with,” Reilly said.

“But I think it’s an exciting time to be alive and watch what happens over the coming decades.”