Markets are quiet today as everyone waits for results from the Trump-Xi summit in Beijing.
Gold is essentially flat. Oil is flat. The dollar is flat. There's nothing to add to yesterday's analysis that would change the short-term outlook.
So instead of restating what I've already written, I want to use today to elaborate on something that could impact markets even more than the current closure of the Strait of Hormuz. Not tomorrow. Not next month. But over the next few years, this is the scenario that I think could drive gold and silver significantly higher.
The AI Trap
Xi Jinping opened today's summit by asking Trump whether the US and China could avoid the "Thucydides Trap," the historical pattern where a rising power and a ruling power end up at war. He then said Taiwan is "the most important issue" in the relationship, and if not handled well, it would push things to a "dangerous" place.
That framing was deliberate. Xi put Taiwan on the table on Day 1.
Here's why this matters for precious metals investors, and why the connection runs through AI.
Taiwan Semiconductor Manufacturing Company (TSMC) produces roughly 90% of the world's most advanced chips. Every Nvidia GPU is powering the AI revolution. Every Apple processor. Every AMD chip. Every Qualcomm modem. The entire AI infrastructure that Microsoft, Google, Amazon, and Meta are spending $560 billion to build runs on silicon manufactured on one island, 100 miles off the Chinese coast.
The more important AI becomes, the more valuable Taiwan becomes. And the more valuable Taiwan becomes, the more tempting it becomes for China to take control of it.
This is the paradox at the heart of the AI boom. The technology driving global markets to all-time highs is simultaneously creating the geopolitical incentive that could destroy those highs.
The Incentive Structure is Accelerating
Every quarter, AI becomes more central to the global economy. AI-related capital expenditure now contributes 1.1% of US GDP growth. The Magnificent Seven's combined market capitalization exceeds $21 trillion. Corporate earnings, military systems, healthcare, transportation, finance... all of it increasingly depends on advanced semiconductors that come from one place.
From Beijing's perspective, the strategic prize of controlling Taiwan grows larger with each passing quarter. And the window to act may be narrowing. The US is building fabs in Arizona. Japan is investing in domestic production. Intel is spending billions to catch up. If China waits 5-10 years, the world may have enough non-TSMC capacity, so that taking Taiwan loses some of its leverage value.
The optimal moment to act, from a pure strategic calculation, is while the dependency is still near-total. That's now or in the next few years. Not in a decade when alternatives exist.
The Iran war has actually made this calculus more favorable for China, not less. The war depleted US missile interceptor stocks (NPR reported the US needs Chinese rare earth minerals to rebuild them). It demonstrated the limits of US power projection: 75 days in, 34% approval, $4.56 gas, and allies closing their airspace. It distracted Washington's strategic attention from the Pacific to the Middle East for months. And it put Trump in Beijing asking Xi for help, rather than the other way around.
What Happens If China Takes Taiwan
If China gains control over TSMC's output, whether through invasion, coercion, or a negotiated arrangement, three things happen.
First, China controls the global semiconductor supply chain. Not just chips. The ability to decide who gets advanced processors and who doesn't. Nvidia can't make GPUs without TSMC. Apple can't make iPhones. The $560 billion in AI data center investment by the hyperscalers becomes partially stranded. The entire AI economy runs on Taiwanese silicon, and China gets a hand on the switch.
Second, the AI bubble deflates. The Magnificent Seven's combined valuation is built on the assumption of uninterrupted access to advanced semiconductors. Remove that assumption, and the $25-27 trillion in combined AI/crypto market capitalization faces a repricing that would make the dot-com crash look contained. The IMF has warned of potential $35 trillion in global asset losses from a correction in these markets. A Taiwan crisis would be the most likely catalyst.
Third, and this is where it connects to gold: the AI bubble deflation triggers a global recession and a fundamental reassessment of systemic risk. The dollar would likely strengthen initially (it always does in crises, because US Treasuries remain the deepest, most liquid safe-haven market and there's no real alternative). But central banks would accelerate gold purchases as diversification against a world that just proved far more fragile than anyone priced in. When the thing everyone thought was safe (tech, AI, the semiconductor supply chain) turns out to be geopolitically vulnerable, gold's role as the ultimate hedge against systemic uncertainty gets rediscovered. Not because the dollar fails. Because confidence in the entire system that was built on uninterrupted access to Taiwanese chips fails.
Trump's Psychological Profile and the Taiwan Risk
I've written extensively about Trump's decision-making patterns in previous analyses. Dan McAdams' "episodic man" framework describes someone who "lives forever in the combative moment, striving to win each moment, moment by moment, episode by discrete episode." Each episode is disconnected from others. "What is true for Trump is what works to win the current episode."
The current episode is a failing war, collapsing approval, rising gas prices, and approaching midterms. Taiwan is an abstract commitment to a distant island. Iran is a concrete crisis destroying his presidency right now.
I'm not predicting that Trump will formally abandon Taiwan. Congress is pro-Taiwan (both parties). Rubio is a China hawk, and he's in the room. TSMC is a critical infrastructure. The defense establishment would resist.
But Trump doesn't need to formally abandon Taiwan to shift the dynamic. He could soften language in a joint statement. Agree to "review" arms sales. Signal reduced commitment in ways Xi interprets as an opening. Use ambiguity as currency. The Council on Foreign Relations flagged exactly this risk: experts worried Trump "would make some kind of comment, or agree to a language change on how the US views Taiwan's status, that would be in line with what Beijing is hoping for."
That's how strategic positions get traded away without a paper trail. "We had a beautiful conversation about Taiwan, very productive, both sides very happy." A statement like that could mean everything or nothing. Xi would know which.
What This Means for Gold and Silver
I want to be clear: this is not something I expect to play out immediately. The medium-term outlook for gold remains bearish through the oil/inflation/Fed channel that I've been describing for weeks. The frozen conflict, the stagflation data, the Fed's inability to cut rates, the strong dollar... all of that continues to pressure gold in the near term.
But on a multi-year horizon, the Taiwan/AI/semiconductor dynamic is bullish for precious metals.
A world where China controls the semiconductor supply chain is a world of collapsing tech valuations, global recession, disrupted trade flows, and central banks hoarding gold as the ultimate hedge against systemic fragility. It's a world where the $35 trillion wealth destruction scenario from the AI bubble becomes plausible, and where gold's role as a store of value during structural upheaval is rediscovered. The dollar would likely stay strong through the crisis (there's no alternative), but gold would rise alongside it as the hedge against a world that just broke in a way nobody priced in.
For now, the short-term trade remains bearish on precious metals through the channel. But the long-term thesis for owning physical gold and silver as insurance against a structural geopolitical shift is strong. The AI boom is building the very conditions that make precious metals essential in the decade ahead.
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Thank you.
Sincerely,
Przemyslaw K. Radomski, CFA