A prominent economic expert warned that gold may be in a dangerous financial bubble on the verge of bursting, as its prices have exceeded all historical levels and reached values far beyond what experts consider the "fair price" for the precious metal.
John Higgins, chief markets economist at Capital Economics, stated that the record rise in gold prices in recent months may be temporary, noting that gold is now trading in an "unrealistic" zone compared to its long history.
Higgins explained in a research note that gold has surpassed inflation rates and other real assets, adding that its real price today is about 60% higher than its peak in 1980 and more than three times its historical average since that year.
Although gold is traditionally considered a safe haven and a store of value in times of turmoil, the expert believes that the recent rise cannot be justified by usual economic factors such as low real bond yields or high inflation rates. He pointed out that bond yields are actually trending upward, making gold ownership less attractive from a real return perspective.
He noted that the historical relationship between gold prices and U.S. Treasury Inflation-Protected Securities (TIPS) yields has collapsed in recent years, reflecting an increasing disconnect between gold movements and economic fundamentals. He also ruled out inflation as a direct cause of the current surge, emphasizing that global price rates have been declining since their peak after the pandemic.
Higgins believes that speculative factors are the main driver behind the rise in gold prices, suggesting that heavy buying from China and investment funds, along with the diversification of reserve managers away from the dollar, are among the prominent reasons for inflated prices. However, he pointed out that some of these factors may be structural and long-term, which could prevent a sharp collapse.
The expert concluded his remarks by stating that gold still retains its position as a global strategic asset, but the current rise may reflect a "state of over-optimism" that makes the market susceptible to a strong correction at any moment.
As gold prices approach new record levels driven by geopolitical tensions and speculation, it appears that the next phase will be crucial in determining whether gold is truly experiencing its golden era or is a bubble on the verge of bursting.
