Is Gold Experiencing A Bubble?

One of the questions that frequently arises with Gold's recent strong performance is "Is Gold in a bubble?"

Before I make some comments concerning this question, here is a long-term monthly chart of Gold for reference:



Chart Courtesy of StockCharts.com

Anytime a security acts as strongly as Gold has, it is natural to suspect a bubble. This is especially true with Gold's price currently, as many people don't understand the complexity of the factors that can drive Gold's price.

As I have previously noted in various blog posts (which can be found under the "Investor" Category on the right-hand side of the home page) Gold's price can be very hard to predict. To a greater extent than other securities, there are many different, hard-to-quantify factors that can drive the Gold price.

Furthermore, the market for Gold is relatively small in relation to other asset markets, so investment flows both in and out of Gold can be magnified.

Is Gold in a bubble? Given the aforementioned, I would hesitate to make an affirmative declaration. This is not to say that it is not overvalued or "ahead of itself." As I wrote in a September 25 post, "I like Gold's properties. However, I don't believe that the economic factors now in existence support a strong Gold price, from an 'all things considered' basis."

Perhaps the greater question should be whether various asset classes are currently experiencing bubbles, and whether Gold is just one of a few (or many) classes in such a condition. In effect, is Gold's price strongly (positively) correlated to that of other asset classes, and if so, why?


SPX at 1091.01 as this post is written