The Bank for International Settlements (BIS) has warned that both the US equity market and gold are displaying bubble‑like features after a sharp surge in both asset classes.
The gold price has risen some 60% year-to-date to trade at $4200 per ounce, while the S&P 500 index has increase about 38% from the lows in April, trading near all-time highs.
The global central bank umbrella body said that both the S&P 500 index and gold are “at risk of being in a bubble” in its latest year-end report.
The BIS noted that the past few quarters of “explosive behaviour” is the only time in the last 50 years in which both gold and equities have risen simultaneously to this extent.
Performance of S&P 500 and Gold since April tariff shock
The BIS analysis suggests that both markets could be in an “ongoing bubble” which it said are “typically followed by periods of negative or subdued returns”.
This warning comes after other central banks expressed similar concerns in recent months, including the Monetary Authority of Singapore and the Bank of England.
While gold is typically used as a safe haven for central banks, the BIS said that retail investor exuberance may have “spilled over” to gold.
It pointed to gold exchange-traded-funds prices trading at a premium relative to their net asset value this year, which it said indicates “strong buying pressure coupled with impediments to arbitrage”.
While an influx of retail investors has mitigated the impact of institutional investor outflows, the BIS warned that they could “threaten market stability… given their propensity to engage in herd-like behaviour” which could exacerbate volatility down the line.
