Saxo Bank: AI Market Reset Could Spark Volatility, But Gold’s Core Strength Remains Intact
A potential revaluation in the artificial intelligence (AI) sector could unleash a wave of market volatility and force widespread deleveraging across assets — including commodities such as gold — but any disruptions would likely prove short-lived, says Ole Hansen, Head of Commodity Strategy at Saxo Bank.
Despite short-term turbulence, Hansen stressed that gold’s long-term fundamentals remain strong, supported by central-bank demand, sticky inflation, and persistent geopolitical risks.
AI Sector Fatigue Raises Market Risk
According to Hansen, signs of exhaustion are emerging across the technology and AI-driven markets, which have seen extraordinary growth this year.
“An almost parabolic rally has stretched valuations well beyond long-term norms,” Hansen wrote. “The past week’s 4.3% pullback in the Nasdaq 100 futures, though modest compared to its 20% year-to-date gain, signals a meaningful change in tone.”
He pointed to a combination of overextended valuations, narrow market participation, and heavy concentration in a handful of mega-cap tech stocks as reasons for concern. Adding to that, warnings from major U.S. bank CEOs of a potential 10–20% equity drawdown have heightened investor unease.
Hansen cautioned that while a correction could remain orderly, it risks turning chaotic “if too many investors rush to exit at once, pushing volatility higher and forcing leveraged traders to unwind positions across markets.”
How Equity Volatility Spills Into Commodities
Hansen explained that volatility shocks often create ripple effects beyond equities because institutional portfolios are increasingly managed with volatility-targeting strategies.
“When volatility spikes, funds must reduce exposure across all asset classes, not just stocks,” he said. “That’s why even fundamentally strong assets — like gold — can experience short-term selling pressure.”
He added that during times of stress, traders often liquidate the most liquid positions, not necessarily those that caused the problem. “This ‘dash for cash’ leaves no market untouched,” Hansen said, emphasizing that commodities typically face temporary liquidation pressure during such periods.
Historical Example: The April Volatility Shock
To illustrate, Hansen referenced the April market turmoil, when a sudden spike in the CBOE Volatility Index (VIX) — from 21% to 60% within three days — triggered a 15% drop in the S&P 500.
“As volatility surged and bond markets wobbled, gold dropped 6.6% from top to bottom, despite strong fundamentals,” Hansen noted. “Silver plunged 17% due to its industrial exposure.”
However, both metals rebounded rapidly once volatility subsided, with gold hitting new record highs within a week. Hansen said this episode demonstrated how quickly the market can correct itself when “forced flows” disappear and fundamentals reassert dominance.
Could Another Volatility Shock Be Ahead?
Hansen believes the current equity landscape, particularly within the AI sector, holds potential for another volatility-driven episode.
“The risk of a sudden liquidation shock has lessened somewhat since metals already underwent a healthy correction,” he said. “But they remain exposed to mechanically driven selling if volatility jumps again.”
He advised traders to keep an eye on any decisive AI market revaluation, which could trigger renewed deleveraging across broader asset classes. “For commodities, this would translate into temporary price weakness caused by portfolio adjustments rather than fundamental deterioration,” he added.
Gold’s Foundation Remains Solid
While gold consolidates near recent highs, Hansen emphasized that its underlying drivers remain firmly in place.
“Fiscal uncertainty, sticky inflation, steady central-bank buying, and geopolitical hedging continue to form a powerful base of support,” he wrote. “Even if we see short-term liquidations, the long-term uptrend is unbroken.”
He also highlighted that industrial metals—such as copper and aluminum—are benefiting from structural demand linked to deglobalisation, electrification, power grid expansion, and the data-center boom, all occurring against a backdrop of limited new mine investment.
Conclusion: Volatility Distorts, But Doesn’t Derail
Hansen concluded that brief price turbulence can lead to temporary anomalies in commodity markets, yet it rarely alters the underlying course of assets backed by solid fundamentals.
“The message is simple,” he said. “Volatility can shake prices in the short run, but for markets like gold that enjoy robust macro and micro foundations, the long-term trend remains firmly upward.”
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