(Kitco News) - The broader market's conviction that artificial intelligence will usher in a deflationary era of productivity is blinding investors to an immediate, capital-intensive infrastructure scramble that is actively draining global resource supplies, according to Azuria Capital Founder and CEO Tavi Costa.
In an interview with Kitco News, Costa warned that the physical infrastructure required to support the AI boom - from massive data centers to a revamped electrical grid - is colliding with a mining sector operating at historic supply deficits.
"The buildup for AI to be deflationary is actually very inflationary, and that buildup is where we are," Costa said. "Once all that is built, we're going to be in a very deflationary world, and I do not want to own hard assets in that environment. We're just not ready for that yet."
Costa argues this overlooked demand shock is occurring exactly as primary mine supply stagnates. While he noted that copper has entered a volatile "price-discovery phase," he stressed that investors are overlooking other critical bottlenecks.
"Zinc prices need to be adjusted much higher," Costa said, pointing out that new zinc supply remains stalled at 2012 levels.
He framed the broader picture starkly: "We can't build mines in two years or three years. These things, it's a view on 15 years from now. We're seeing the rebirth of mining in a large way."
The Sovereign Debt Trap and an 'Emerging Markets Moment'
This physical supply crunch is unfolding against a backdrop of severe sovereign debt stress. Costa warned that the U.S. Treasury market is currently behaving erratically, effectively handcuffing the Federal Reserve's ability to maintain hawkish policy over the long term.
"We're getting close to an emerging-markets moment in the Treasury market," Costa said. "We're playing with fire in the U.S. in a huge way."
He pushed back directly on the market's growing expectation that newly confirmed Fed Chair Kevin Warsh will raise rates in response to accelerating inflation. Warsh, sworn in on May 22, used his opening note this week to pledge fidelity to "the best of the Fed's traditions," according to Reuters, while Cleveland Fed President Beth Hammack publicly suggested the central bank may need to tighten further.
Costa called the hike narrative a misread.
"Maybe we'll see one rate hike, and I'm wrong here, but I really don't think that should be any investor's base-case scenario," he said. His base case: "We're probably going to see further cuts, not only the short end but also the long end eventually, because the system cannot survive if we see this."
The constraint, in his view, is the math of debt service. "Interest payments to GDP are getting to a level that is well above any other country in the world today, particularly developed economies that are more comparable to the U.S.," Costa said. He expects Washington to eventually reach for tools last used in the 1940s, including yield-curve control.
Gold's quiet displacement of Treasuries
The sovereign-level rotation Costa has been forecasting is now visible in the data. According to the European Central Bank's annual report on the international role of the euro, gold now accounts for roughly 27% of total global official reserve assets, surpassing U.S. Treasuries at 22% - a shift the ECB attributed largely to gold's price appreciation rather than net new buying. The World Gold Council reported that central banks added 863 metric tons to official reserves in 2025, with Poland, Kazakhstan, Brazil, China and Türkiye among the largest buyers.
On Wednesday, Reuters reported that the Reserve Bank of India publicly denied a Bloomberg Economics analysis suggesting it had sold roughly $12 billion in gold reserves in the two weeks ended May 22, saying its physical stock remains unchanged at 880.52 tonnes.
Costa said the cost of suppressing rates to service national debt will ultimately be paid through currency debasement.
Populism, M&A, and the Latin American roadmap
As inflation and wealth inequality reach levels Costa compared to the 1930s, he warned of rising political risks, pointing to recent comments by Sen. Bernie Sanders proposing significant government equity stakes in AI companies.
"Equity positions live on forever," Costa said, cautioning mining executives chasing government capital that political leadership will eventually change. "The gap of valuation between emerging markets and the rule-of-law economy is starting to be in check here."
Faced with these supply realities and mounting jurisdictional risks, major mining companies are prioritizing corporate consolidation over greenfield development. Costa, who holds a position in Orla Mining, addressed the recently announced $18.5 billion all-share merger between Equinox Gold and Orla, which would create a roughly 1.1-million-ounce North American gold producer.
The deal was announced just weeks before Orla halted operations on June 1 at its Camino Rojo mine in Mexico's Zacatecas state due to what the company described in a statement as an illegal worker blockade tied to profit-sharing disputes.
"I still own Orla," Costa said. "But it is one of the situations where the fundamental story could be changing here. It just goes to show how Mexico is a difficult jurisdiction."
On the merger itself, he was constructive: "The Equinox and Orla combination - it makes a ton of sense. It's not necessarily a synergy-type merger, but it is a sort of re-rating thesis where you get to a million ounces production a year."
Costa, who is Brazilian, has flagged Latin America as a defining investment opportunity for the next decade. With Reuters reporting that Barrick Mining is weighing a London listing to spin off its African business and refocus on North America, Costa said the structural case for Latin America has strengthened despite recent share-price pullbacks.
"Latin America does carry its own risks," he said. "But I think there's some inherent floor of safety in those markets just given the fact that we are in a crunch for supply." He pointed to Argentina under President Javier Milei as the regional "roadmap" for attracting capital - with reforms on inflation, currency stability and openness to foreign investment being studied by neighbors including Bolivia and Chile.
Nationalization, Costa argued, "would be a very difficult endeavor to pursue in today's markets" given the strategic value sovereigns now place on critical-mineral access.
Silver's supply math
The structural argument extends across the precious-metals complex. According to the World Silver Survey 2026, published by the Silver Institute and Metals Focus, the silver market is projected to record a supply deficit of approximately 46.3 million ounces this year - the sixth consecutive annual shortfall. About 70% of silver is mined as a byproduct of other metals, meaning higher silver prices do not directly trigger new primary mine development.
Costa expects that imbalance to resolve through a violent upside repricing rather than industrial demand destruction. "Repricing would probably be on the upside given the supply constraints," he said.
'Early to mid innings'
So how should capital allocators accurately price jurisdictional risk into their models today? How does a professional investor survive the 60% to 70% drawdowns that are notorious in the mining sector? And what is the exact macroeconomic trigger that would force Costa to immediately liquidate his hard-asset portfolio?
