Gold hit another record high. Has it formed a bubble yet?

Dow Jones
09/23

MW Gold hit another record high. Has it formed a bubble yet?

By Myra P. Saefong

A 'perfect storm' of factors continues to drive the metal higher

Gold on Monday marked its 36th record-high close of the year so far.

Gold may be showing signs of a bubble formation - with prices on Monday scoring their 36th record high of the year so far - but not all analysts are convinced that the precious metal has overextended its rally.

The yellow metal has been rallying since mid-2023 and has been reaching consistent all-time highs since then, wrote Brett Friedman, Winhall Risk Analytics/OptionMetrics contributor, in a recent note. That has come as many see gold as the "perfect investment at the perfect time" - thriving off fear and uncertainty around inflation, currency debasement, debt, conflict and socioeconomic anxiety, he said.

Gold is perfect for those looking for "catastrophe insurance," Friedman noted. Interest in the metal is high, and "that's to be expected given its stellar price action" over the last few years, he said. That alone, however, "does not necessarily indicate that it's in, or even forming, a bubble."

Gold has certainly seen a rapid rise, trading around 43% higher so far this year. Its value has more than surpassed its inflation-adjusted high from 1980, suggesting that its rise may be unsustainable.

On Monday, gold for December delivery (GCZ25) (GC00) climbed $69.30, or 1.9%, to settle at $3,775.10 an ounce on Comex, the highest finish for a most active contract on record. That marked the metal's 36th record-high close this year to date, according to Dow Jones Market Data.

Read: Gold keeps hitting record after record. Is it time to think about selling?

Bubble or not?

While it's "notoriously difficult" to identify financial bubbles, which tend to "only reveal themselves with certainty in retrospect, not while they are occurring," Friedman said gold does not appear to be in a bubble just yet.

From an options point of view, the market itself "does not seem to be exhibiting the highly volatile, frantic behavior that characterizes a genuine bubble," he said. "Instead, gold seems to be in an aggressive and consistent bull market."

"Financial bubbles do occur, but they are very rare," said Friedman. "Unqualified assertions surrounding them should be treated with extreme skepticism."

Gold options are not indicating that a bubble is forming, he noted. If it were, implied volatility would be increasing, reflecting heightened uncertainty and frantic price behavior, and out-of-the-money options would be getting more expensive relative to at-the-money options, he said.

Out-of-the-money options have no intrinsic value. For example, a call - which gives the holder the right to buy the underlying asset at a certain strike price by a certain time - would be out of the money if the strike price was above the market price. At-the-money options have a strike price at or near the current price.

Friedman said that in a bubble, the spread between out-of-the-money and at-the-money options would become skewed. The spread "should increase as demand shifts to lower-premium options with the chance for spectacular returns."

The below chart from OptionMetrics shows a "skew" between 0.50% and 0.25% strike gold options since the beginning of 2024, he said. The skew is not expanded and is not at unusual levels, so gold investors are "not rushing into out-of-the-money strikes, as one might expect if a bubble were forming or present," he wrote.

Gold investors are also not raising the absolute level of implied volatility as they would if they were anxious about increased uncertainty, or efficiently hedging their gamma risk, Friedman said. "Gold implied volatility is still running at relatively normal levels."

Still, there are signs that gold "might have the potential to form" a bubble, he added.

Those signs of a bubble include gold's "ever-increasing presence on social media and the mainstream press, as well as the explosion in gold-ETF activity," he said.

'Perfect storm'

But some gold watchers believe that the reasons behind gold's climb are solid and point to further gains for the precious metal.

A "perfect storm" continues to define what's driving gold, as well as silver (SI00), higher, said Adrian Ash, director of research at BullionVault.

"With America's internal divisions and political violence both worsening, falling [Federal Reserve interest] rates are now combining with the NATO-Russia escalation to boost gold and silver's safe-haven appeal," he said. That's being aided by the breakdown in Western unity over "everything from the war in Gaza to handling China's global ambitions."

And the "collapse in global trust and cooperation" shows no sign of letting up, said Ash, pointing out that last week's surge in gold exchange-traded funds shows that the real inflows to precious metals have barely begun.

The SPDR Gold Shares ETF GLD has posted gains in each of the last five weeks, FactSet data show.

Monday's rise in gold prices doesn't appear to be based off any fresh news, said Jake Hanley, managing director and senior portfolio specialist at Teucrium.

Gold is "seeing a healthy bull run" based on the technical price action since Sept. 1, which is "bolstered ... by increasing inflationary caution, as well as geopolitical concerns."

Gold futures prices, along with their 50-day, 100-day, and 200-day moving averages, have seen a steady rise.

Meanwhile, gold's price chart "exhibits classic breakout behavior: a prolonged consolidation phase, a clear resistance level, bullish trend alignment, and a decisive move with strong candles and continuation," Hanley said.

"This suggests a high-conviction breakout with momentum on the side of the bulls," he added.

-Myra P. Saefong

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September 22, 2025 15:46 ET (19:46 GMT)

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